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3 February 2011
Last updated at 08:58 ET
The European Central Bank (ECB) has kept interest rates in the eurozone unchanged at a record low 1%, despite fears of increasing inflation.
Speaking at a press conference after the rate decision, the ECB governor Jean-Claude Trichet claimed that inflation pressures remain contained.
He added that "very close monitoring is warranted".
The move comes on the back of stronger economic data, including an encouraging eurozone manufacturing survey.
On Monday, the Markit Purchasing Managers' Index (PMI) for the eurozone said that the region's factory output rose slightly to 57.3 in January from 57.1 in December.
Any value above 50 indicates expansion in the manufacturing sector.
The equivalent survey in the US - the ISM survey - said that factory activity rose to a higher-than-expected level of 60.8 in January, up from 58.5 in December.
'Tilted to the downside' Mr Trichet said the ECB board's decision not to raise interest rates was unanimous.
Although inflation expectations remain "well anchored", he warned that the inflation rate could temporarily increase further, and is likely to stay slightly above 2% most of 2011, before moderating again in 2012.
Rising energy and commodity prices were the immediate cause, but the ECB governor warned that rising indirect taxes - such as VAT - and price pressures in production chains could further heighten price rises.
On the wider eurozone economy, he said that recent data continues to confirm a "positive underlying momentum", noting the strong export recovery and rising private sector confidence.
Risks were still "slightly tilted to the downside", he said while "uncertainty remains elevated".
Mr Trichet noted in particular the risks posed by the financial sector, rising commodity prices, trade protectionism and a potential disorderly correction of global trade imbalances.
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Speaking at a press conference after the rate decision, the ECB governor Jean-Claude Trichet claimed that inflation pressures remain contained.
He added that "very close monitoring is warranted".
The move comes on the back of stronger economic data, including an encouraging eurozone manufacturing survey.
On Monday, the Markit Purchasing Managers' Index (PMI) for the eurozone said that the region's factory output rose slightly to 57.3 in January from 57.1 in December.
Any value above 50 indicates expansion in the manufacturing sector.
The equivalent survey in the US - the ISM survey - said that factory activity rose to a higher-than-expected level of 60.8 in January, up from 58.5 in December.
'Tilted to the downside' Mr Trichet said the ECB board's decision not to raise interest rates was unanimous.
Although inflation expectations remain "well anchored", he warned that the inflation rate could temporarily increase further, and is likely to stay slightly above 2% most of 2011, before moderating again in 2012.
Rising energy and commodity prices were the immediate cause, but the ECB governor warned that rising indirect taxes - such as VAT - and price pressures in production chains could further heighten price rises.
On the wider eurozone economy, he said that recent data continues to confirm a "positive underlying momentum", noting the strong export recovery and rising private sector confidence.
Risks were still "slightly tilted to the downside", he said while "uncertainty remains elevated".
Mr Trichet noted in particular the risks posed by the financial sector, rising commodity prices, trade protectionism and a potential disorderly correction of global trade imbalances.
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