ECB May Keep Key September Rates At 7-Year High Amid Economic Downturn

September 1, 2008 10:13 a.m. EST

London, U.K. (AHN) - The European Central Bank is likely to keep the key interest rates unchanged at 4.25 percent on Thursday amid economic downturn that may worsen.

The Frankfurt-based central bank will keep the benchmark rate at seven-year high during its meeting on September 4 as the euro zone's economy contracted in the second quarter.

The ECB had left the key interest rates at 4.25 percent during its August meeting after raising it by 25 basis points in the month of July.

The good news for the region could be that the eurozone annual inflation rate of the region has eased to 3.8 percent in August, compared to the record level of 4.0 percent in July.

But since the ECB has set its target to just below 2.0 percent, the decline in inflation is not going to change the minds of the members to cut down the benchmark rate.

The market analysts speculate that higher interest rates may not curb the economic slowdown and there is a risk of a recession.

On Monday, the euro plunged to a 5-month low against the yen, while it fell to a six-week low against the franc.