FRANKFURT, Aug 28: The European Central Bank is widely expected to hold its key interest rates steady at its regular monthly policy-setting meeting later this week, after raising them by a quarter-point at the beginning of August, analysts here predicted on Monday.

But the guardian of the euro is certain to tighten monetary conditions in the single currency area again in the coming months in order to keep a lid on inflation as economic recovery continues to gather pace, the ECB watchers said.

In a survey of 30 economists by AFP and the financial news agency AFX, 29 experts said they expected no change in rates when the ECB's decision-making governing council meets on Thursday.

The bank last raised its benchmark “refi” refinancing rate by a quarter of a percentage point to 3.00 per cent on August 3, the fourth such move since December.

The rate of money supply growth last month was lower than expected -- analysts had been pencilling in growth of 8.3pc for July. And the slowdown was seen as an indication that the ECB's rate hikes so far are beginning to take their effect, analysts said.

But the data would not persuade the ECB to hold off further rate hikes, analysts said.

It looks unlikely that the ECB will change its general assessment regarding monetary developments, said Commerzbank economist Michael Schubert.

Due to the very high level of excess liquidity, the bank will continue to warn against marked long-term upside risks to price stability. I still expect quarter-point rate hikes at each of meetings in October and December.Most ECB watchers predict that the “refi” rate could stand at 3.50 per cent by the end of this year.

Some question marks do appear, however, to be arising with regard to the sustainability of the current economic upturn.

In the case of the German economy, the biggest in the 12-nation eurozone, for example, some clouds are beginning to build up in the form of high oil prices, the strong euro, the planned increase in value-added tax at the start of next year and rising interest rates.

Only last week, the economic expectations index calculated by the Mannheim-based think-tank ZEW fell to its lowest in five years.

In the wake of such developments, some observers argue that the ECB should not raise its rates too far so as not to accused of choking off recovery.

Nevertheless, while individual data did recently point to a moderation in the momentum of growth, the eurozone economy is still in a recovery phase, economists said.

The latest dip in some leading indicators will hardly be a cause of concern, unless the downturn were to continue, said Commerzbank's Schubert.

Given the strong growth rates currently being achieved, the indicators would have to fall sharply for the ECB to suspend rate hikes before the refi reaches 3.50 per cent.BBVA economist Elena Nieto agreed.

Monetary policy continues to be accommodative ... so additional rate hikes should be expected, she said

And Rabobank economist Elwin de Groot said: For the remainder of this year, we believe ECB policy will be mainly focused in getting interest rates closer to the levels its sees as being appropriate in an environment of strong growth and persistent inflation.—AFP