ECB holds interest rates as growth risks grow

Inflation risks in the eurozone are now broadly balanced, European Central Bank president Jean-Claude Trichet has said, cementing expectations that interest rate rises are now on the backburner as economic growth stalls across the region.

The ECB has held interest rates at 1.5 per cent, despite eurozone year-on-year inflation steadying at 2.5 per cent, well above the ECB's target of just under two per cent.

Trichet flagged slow growth ahead for the currency bloc and said even that was uncertain.

"We expect the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks," Trichet told a news conference after the ECB left rates at 1.5 per cent, following hikes in April and June.

Inflation should fall below two per cent in 2012, Trichet said, and price risks were "broadly balanced".

That assessment marked a change from last month, when he said there were "upside risks to price stability".

The change in the ECB's inflation view suggests it has abandoned its policy tightening course and that interest rates are now on hold.

The ECB has increased rates twice, in July and in April, when it become the first major central bank to hike after the intensification of the financial crisis.

"A very thorough analysis of all incoming data and developments over the period ahead is warranted," Trichet said. "We will continue to monitor very closely all developments."