updated 5/4/2005 8:56:10 AM ET 2005-05-04T12:56:10

The European Central Bank kept its key interest rate unchanged Wednesday at 2 percent amid slipping economic confidence and weak growth prospects in Europe.

The bank's governing council decided to leave its key refinancing rate at the level where it has been since June 2003.

The decision was in line with expectations by all 45 economists polled by Dow Jones Newswires. They predicted that the bank would hold steady, putting the focus on its outlook for the months ahead.

While the ECB's rate has stayed unchanged, the U.S. Federal Reserve has increased rates eight times since last June. The latest increase came Tuesday, when the Fed raised its funds rate by a quarter percentage point to 3 percent.

It remains unclear when the ECB might move. Since the bank's April 7 meeting, leading indicators have pointed to weakening growth, and high oil prices also remain a concern.

Last week, the European Commission's consumer confidence indicator fell for a third straight month. The government of Germany, the largest economy in the 12-nation euro zone, cut its growth forecast for this year to 1 percent from 1.6 percent _ though many economists believe it will be even lower. Italy cut its growth forecast to 1.2 percent from 2.1 percent

Meanwhile, inflation in the euro zone was unchanged in April from the previous month, at an annual rate of 2.1 percent.

Fighting inflation is the ECB's chief mission, though it also must consider the effect that rates have on growth. Ill-timed hikes to combat inflation could dampen growth by raising the cost of borrowing for businesses.

Wednesday's meeting in Berlin is one of two each year that the ECB holds away from its Frankfurt headquarters. The bank also moved the meeting forward from its usual Thursday date due to the Ascension Day holiday.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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