updated 9/2/2004 9:30:02 AM ET 2004-09-02T13:30:02

The European Central Bank left its key interest rate unchanged at 2 percent Thursday, as it waits for solid evidence that the continent's economic recovery has firmed up.

The bank, which controls monetary policy for the 12 countries using the euro currency, has left the rate untouched since a half-point cut in June 2003 as it waits for a recovery to kick in.

The euro zone has been experiencing sluggish growth for more than a year, resulting in naggingly high numbers of people out of work.

The unemployment rate in the dozen countries using the euro was unchanged at 9 percent in July __ far above other parts of the industrialized world. The jobless rate stood at 5.6 percent in the United States and 4.9 percent in Japan, according to Eurostat, European Union statistics agency.

"It's a strange situation for the bank" because lower interest rates, which are meant to recharge the economy, are already at their lowest since the end of World War II, said Stefan Schneider, an economist with Commerzbank in Frankfurt.

"It would like to see whether oil prices come down, whether consumption increases _ and only then may it increase the interest rate," Schneider added.

Lower interest rates decrease the cost of borrowing money, which can help fuel a recovery, just as higher interest rates can be used to fight inflation.

According to Eurostat, July's inflation rate for the euro zone was 2.3 percent, a slight dip from the month before, but still higher than the European Central Bank target rate of "close to, but below" 2 per cent. The bank has said that inflation remains under control, despite indicated potential risks from higher oil prices.

"For the bank, spreading economic recovery is now more important than fighting inflationary pressure from the increase in oil prices," said Schneider.

Bank president Jean-Claude Trichet, who has forecast increased growth in 2004 and 2005 for Europe's economy, was expected to explain the bank's decision later Thursday at a press conference.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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