May 5, 2006	Friday	Rabi-us-Sani 6, 1427

FRANKFURT, May 4: The European Central Bank held its key interest rates steady as expected at its regular monthly policy-setting meeting on Thursday, but ECB Jean-Claude Trichet primed the markets for a tightening of monetary policy in the single currency area in June.

The ECB decision came only 45 minutes after the Bank of England also decided to maintain the status quo and hold its key rates steady at 4.50 per cent.

The euro guardian held the minimum bid rate for its regular refinancing operations steady at 2.50 per cent for the second month in a row, after raising it by a quarter of a percentage point in March.

It also held its two other key rates — the deposit rate and the marginal lending rate — unchanged at 1.50 per cent and 3.50 per cent respectively.

ECB watchers had unanimously predicted there would be no change in eurozone borrowing costs this week.

However, the overwhelming majority of them are pencilling in a rise of at least a quarter of a percentage point to 2.75 percent when the bank’s decision-making governing council meets in Madrid on June 8.

At the news conference after this week’s meeting, Trichet said nothing to discourage such an interpretation, but stressed that the ECB had not made any decisions about further rate hikes.

Next week’s Inflation Report... should answer the question of whether there is any chance of a near-term rate hike fairly conclusively, Lehman Brothers economist Alan Castle said.

And, despite the stronger tone to the dataflow over the past few weeks, we doubt that there will be big shifts in the MPC’s medium-term growth and inflation profiles.

The British economy grew by 0.6 per cent in the first quarter of 2006, matching the previous three-month period, according to recent official data.

Gross domestic product (GDP) grew by 2.2 per cent during the three months ended March 31 from the same quarter in 2005, marking the highest annual rate since the fourth quarter of 2004.

British 12-month inflation meanwhile posted a surprise drop to 1.8 per cent in March from 2.0 per cent in February. The annual inflation rate was the lowest since February 2005 and was below the BoE’s 2.0-per cent government-set target.—AFP