updated 10/4/2007 9:15:53 AM ET 2007-10-04T13:15:53

The European Central Bank held its benchmark interest rate steady at 4 percent on Thursday, but its leader signaled that the bank was still worried about inflation and has not ruled out future rate increases.

Major Market Indices

ECB President Jean-Claude Trichet said the bank would "monitor very closely" developments in the euro zone and that it was "ready to counter" risks to inflation, including higher energy prices, amid a more volatile world economy.

Given the scope of uncertainty because of turbulence stemming from the U.S. subprime crisis, Trichet said that "additional information is needed before monetary conclusions can be drawn."

That was a signal that while no rate increases are likely in the near term, they've not been ruled out, either.

The decision, and Trichet's remarks, pushed down the euro, which had been steadily setting new highs in recent weeks. In afternoon trading, the euro bought US$1.4073, its lowest point in a week, compared with US$1.4108 the night before in New York.

The dollar had been weakening since the U.S. Federal Reserve made a larger-than-expected half-point rate cut. Some politicians and business groups — concerned about the effect of a strong euro on Europe's economies and exports — had called for the ECB to follow suit.

In London, the Bank of England also decided Thursday to leave its key interest rate unchanged at 5.75 percent, a move most analysts had predicted. Howard Archer, chief U.K. and European economist at Global Insight, said a move by the British bank to cut rates would have been premature.

"Indeed, a cutting of interest rates at this stage could have been seen as a panic move and risked damaging the bank's anti-inflation credibility," he said in a statement.

Trichet and Bank of England governor Mervyn King are under an unusual degree of political pressure, with Trichet facing calls from France's new President Nicolas Sarkozy for the ECB to do more to dampen the euro's rise, while King has been grilled over the fallout from the U.S. credit crisis.

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