The European Central Bank (ECB) has left key interest rates unchanged, despite the euro's weakness in currency markets and rising inflation.
Most analysts hadn't expected the E-C-B to move on rates at the latest meeting of its policy-making board on Thursday after boosting rates earlier this month.
The central bank, which decides monetary policy for the 11 countries using the euro single currency, last raised key lending rates by a quarter per cent to 4-point-75 per cent on October 5.
But it takes several quarter per cent rate rises to have any economic impact.
Core consumer inflation is also only picking up moderately, despite high oil prices and the protracted weakness of the euro.
The E-C-B governing board met in Paris instead of its home base in Frankfurt, Germany, hoping to raise its profile.
The E-C-B has raised interest rates six times this year in an attempt to bolster the euro, which has lost around 29 per cent of its value since it was launched in January 1999.
Usually, interest rate hikes boost the local currency and tend to cool inflation, but so far the euro is still languishing against the U-S dollar.
There are now signs of inflationary pressures building in the euro-zone, aggravated by higher oil prices.
The last interest rate hike came after the E-C-B and its U-S, Canadian, Japanese and British counterparts intervened on the currency markets on September 22 in a bid to boost the euro.
It did recover but the rally was short-lived.
The euro dipped to a record low of 83-point-24 U-S cents at midday on Wednesday in New York, but was trading about a penny higher by midday on Thursday in Europe.
After the policy-making meeting on Thursday, E-C-B president Wim Duisenberg told a news conference it was clear the euro was undervalued, but denied there was cause for alarm.
"The undervaluation of the euro is giving cause for concern that it might have adverse implications for the world economy, including the risk to price stability in the euro area that it entails. Adhering to its mandate and following its forward looking strategy, the governing council will ensure price stability can be maintained over the medium term. The confidence of investors in the internal stability of the euro and the positive outlook for the euro area are contributing to the attractiveness of investing in the euro area and will support a stronger value of the euro. Looking forward, there are indeed challenges to be taken up by means of appropriate and determined action, but there are good reasons for remaining confident."
SUPER CAPTION: Wim Duisenberg, President, European Central Bank
He blamed a current misalignment in the currency markets which he said would be corrected in time.
Duisenberg was repeatedly questioned about his remarks published on Monday by the 'Times' newspaper that it wouldn't make sense for central banks to intervene in the currency markets if war in the Middle East triggered sharp movements in exchange rates.
But he refused to answer questions about the interview, saying that intervention was a tool available to central banks to be used "if and when appropriate".
Despite Duisenberg's remarks in the Times, some said currency intervention by the E-C-B in the short-term couldn't be ruled out.
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