European Bank Leaves Rate Unchanged

FRANKFURT, Nov. 8 — The European Central Bank held interest rates steady today but also signaled its displeasure with the euro’s rushed rise against the dollar.

“In the recent period I have observed moves that I would say were undoubtedly sharp and abrupt,” the bank’s president, Jean-Claude Trichet, said. “And I said already that brutal moves were never welcome.”

In describing the euro’s ascent as “brutal,” Mr. Trichet wheeled out a phrase he last applied to currency markets in November 2004, when the value of the common European currency climbed to about $1.35. The euro is now hovering near record highs above $1.46.

The bank left its benchmark interest rate unchanged at 4 percent, a stance it has maintained since canceling a planned increase in September. That followed tightening in the credit market in reaction to the mortgage lending crisis in the United States. Despite rapidly rising oil and food prices, the central bank has apparently concluded that raising borrowing costs at a time when many large banks are still reeling from losses incurred through bets on mortgage-backed securities would be too dangerous. But it has not hidden its preference for an increase when markets calm down.

The European Central Bank is chiefly responsible for fighting inflation and has been caught off guard by a recent jump that might otherwise prompt it to increase interest rates to contain the trend. But Mr. Trichet said that a monthly surge in prices — the reading in October was 2.6 percent, well above the bank’s comfort zone of near, but below 2 percent — was likely to be an aberration as inflation declines by mid-2008.

The central bank also announced it would conduct two new liquidity injections worth 115 billion euros into the financial system, an apparent indication that it still sees tighter-than-normal credit and that it is determined to nurse the markets back to regular function. The two operations, planned for late this month and early December, will extend the loans the bank made as the credit market seized up late this summer.

The effect of Mr. Trichet’s verbal intervention remains to be seen, and analysts pointed out that the 2004 effort eventually bore fruit, though the unwinding of speculative bets against the dollar also played a role.

“What will matter is future volatility,” said Julian Callow, chief Europe economist at Barclays Capital in London. “You can only appraise verbal intervention over months.”

As is his custom, Mr. Trichet gave no indication that the E.C.B. and other central banks might intervene in support of the dollar, something they did in 2000. He also brushed off suggestions that the E.C.B.’s policy of raising rates, which increases the appeal of euro-denominated assets, was exacerbating the dollar’s weakness.

Coming at a time when the Federal Reserve is cutting rates to bolster a softer American economy, the European policy has probably amplified the trend toward a weaker dollar. But Mr. Trichet emphasized that the bank’s primary mandate is to fight inflation.

“Each of us in our own environment did what was required by the situation,” Mr. Trichet said.

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