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ECB leaves rate on hold
September 13, 2001: 7:40 a.m. ET

European Central Bank leaves interest rates at 4.25%, despite U.S. terror
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LONDON (CNN) - The European Central Bank has left interest rates on hold -- despite concerns the terror attacks on the U.S. could trigger a recession.

ECB President Wim Duisenberg had dampened speculation of a cut on Wednesday, saying it was "far too early to judge what the events... will have for an impact on medium-term developments."

Interest rates are currently at 4.25 percent. Economists had expected the ECB to hold fire, although they did not discount a move in the wake of the attack on the heart of the U.S. business and political centres on Tuesday.

Market watchers told CNN before the attacks that the ECB would not cut rates after cutting its benchmark rate by a quarter point just two weeks ago.

As pictures of passenger planes ramming into New York's 110-story World Trade Center buildings were broadcast around the globe, European stock markets plunged, wiping billions off the value of stocks and raising fears the shock to U.S. confidence could send the global economy spiraling into recession.

There have been calls on central banks around the globe to trim rates to boost confidence, but central banks chose to pump about $120 billion of emergency funds into markets to allay concerns and boost confidence. 

"An interest rate cut now could... create even more panic because it is interpreted as a sign of panic," Michael Schubert, at Commerzbank in Frankfurt, told Reuters before the decision. He added that the appropriate reaction was to smooth out money market liquidity, which the ECB did.

Economists said that if the U.S. Federal Reserve decided to slash interest rates for the eighth time this year in a bid to restore consumer and market confidence, the ECB might follow.

"If the U.S. Fed cuts rates soon, maybe in the next 72 hours, the next couple of days, the ECB will have to do the same," said Adolf Rosenstock at Nomura International.

Duisenberg, speaking before a European Parliament committee, also repeated that current interest rates were not standing in the way of economic growth and stressed the 12-nation single currency area was not facing a recession.

The ECB is expected to wait for further data before moving on interest rates. Another move may come in October, but all depends on whether inflation continues its downward trend.

Inflation in the 12 nations of the euro zone hit an eight-year peak of 3.4 percent in May and has been on a downward trend ever since. Recent data from Italy and Germany showed a further downward trend in inflation. The ECB has a target rate of 2 percent.

From staff and wire reports graphic