FRANKFURT (Reuters) - The European Central Bank Interest Rates Kept at 1 percent as forecast on Thursday, ahead of STI policy statement WHERE It Is Expected to repeat icts recent inflation warning signal to a rate rise That Is Not Imminent.
The bank's decision to leave eurozone rats on hold Was The 21st month running it Kept Them At The record low level.
The Euro Bond Market and react Did Not Expected To The Heavily decision.
It leaves firmly Focus On The 1330 GMT news conference With ECB President Jean-Claude Trichet Where the bank's message on The Ongoing build-up of euro zone inflation Pressures Will Shape Financial Markets' View on the timing of ECB rate hikes future.
"Rates Unchanged Is in Line With Expectations But The Key is really Trichet's tone in the Press conference and What May Be alluded to in terms of monetary policy and liquidity support In The months ahead," Deutsche Bank economist Mark Said Wall.
"Markets Were Surprised By The last month inflation talk from Trichet, It Was not signal of policy and action HIM WE WOULD expect to Maintain That message in this month's press conference."
Inflation In The common currency area has been "above-the ECB's target of below Price Stability, to close to 2 percent for the Past Two Months and Stood at 2.4 percent in January.
Producer Prices rose more than expected in December, Mainly Boosted by a jump in energy costs: rising inflationary pressure may also pointing to In The Pipeline, and signs of surging inflation corresponded With The strong performance of The Service Sector Firms in euro zone Düring January.
Last month, The ECB icts toughened language is inflation dangers, Saying "very close monitoring of price Development Is Warranted," Risks And That price, while "still broadly balanced," could "Move to the upside.
The sharpened tone Saw Financial Markets Bring forward rate hike expectations. Nevertheless, analysts Believe the language shift more about communicating WAS ITS Commitment Than Markets Preparing for a hike soon.
"They are moving to keep up The Rhetoric inflation expectations at bay and to Avoid Them Drift Higher seeing," UniCredit economist Marco Valli said. "By now barking, The ECB CAN Afford to act spleens Later On."
An important clue to how well The 17-country bloc's central bank has succeeded will Anchoring inflation expectations in Is The Survey of Professional Forecasters.
ECB President Jean-Claude Trichet Will Likely face questions about The survey, Even Though It Will Be Officially published next week. A rise in inflation expectations to above-the central bank's target Would Increase pressure for it to act savings account payday advance.
Financial markets started "moving forward Their rate hike expectations After the January meeting.Markets now see a chance of a First Rate Increase "during the coming summer, and recent days Have Seen more price Threats gathering.
Trichet has beens not alone in talking tough is inflation.
Executive Board member Lorenzo Bini Smaghi Followed up by warning Against Keeping accommodative policy in place for too long, Adding That Carry Import Prices Threat inflationary year.
Instability
Turmoil in Egypt and Other Arab states adds to Uncertainty about energy price Rises Further, Which Have Already spiked.
"Rising tensions in the Arab world and very elevated Readings on Various Types of Inflation Measures Can not Have Made Some Governing Council Officials In Their more confidant January inflation spleens Would That view only" temporarily Increase further ', "analyst Stephen Schneider Foreign Exchange in Said Gallo a note to investors.
Of crucial importance Will Be How Much Of The import price increaser seep Into Domestic Prices Through Higher Wages.
As long as energy and food Prices do not lead to second round inflationary effects, There Is No Need for ECB to React With The rate increaser, German Government advisor has said.
"The ECB Will observes very Closely In The Box and second round effects emerge It Will react," Wolfgang Franz said.
The Euro's Rise Against the dollar - the currency in Which commodities trade - has WORKED In The ECB's favor.
It Is up about 5 percent versus dollar The spleen Since The January rally, bolstered by expectations Growing thats the ECB Will Be well ahead of U.S. Counterpart icts in raising rates.
With The bulk of euro zone inflation coming from imports, The Rising Euro Weaken "should inflationary pressures.
Increasing expectations of interest rate aussi Rises Have Brought The outcome of ECB code words back to forefront, Used In The last rate raise cycle have a traffic light system.
"The use of 'strong vigilance' Was The signals were very The ECB Likely to Raise Rates THE FOLLOWING month," RBS economist Nick Matthews Said in a note.
"Markets Should Be alert for" any one resembling phrase 'strong vigilance' Or The more recent incarnation of 'Heightened alertness' If The ECB Were Seriously year early signaling rate hike, "He Said, He Did not expect Adding to See Before this July at The Earliest.
(Reporting by Sakari Suoninen, editing by Mike Peacock)
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