( dpa ) - The European Central Bank is likely to walk a fine line Thursday when the bank's governing council considers interest rate policy in the 15-member eurozone at its first meeting of the New Year.
Apart from balancing evidence of renewed consumer price pressures with slackening global economic growth, the 21-head, rate-setting council will also have to grapple with demands from within its ranks for urgent action to counter inflationary risks.
Most analysts believe this is likely to result in the ECB leaving borrowing costs on hold at 4 per cent Thursday and that borrowing costs in the eurozone will remain unchanged throughout 2008.
For the time being, however, the hawkish ECB is unlikely to follow the lead of monetary authorities in several nations, including the US and Britain, and push towards cutting rates.
Indeed, with the ECB charter giving priority to fighting inflation, bank chief Jean-Claude Trichet is expected to talk tough on the threat posed by a pickup in inflation at his press briefing to follow the governing council meeting.
With this in mind, financial markets are likely to focus on Trichet's press briefing for any comments about any differing positions in the ECB about the monetary course it plans to follow in the coming months.
In particular, this comes in the wake of pressure from a German- led hard-money faction on the ECB's governing council which has been pressing the case for the bank to act now to deal with current inflation risks.
Inflation in the now 15-member eurozone remains stuck well above the ECB's 2 per cent target, coming in at 3.1 per cent in December on the back of high food prices and a surge in energy costs.
Trichet is also likely to seize on a round of aggressive pay demands from unions across Europe to warn about the inflation risks posed by higher wages.
German public sector unions have already threatened industrial action in support of their push for an 8-per-cent pay rise this year. At the same time, the runup to Thursday's meeting has been accompanied by economists' moves to revise down their projections for the eurozone economy.
Economists see the currency bloc's expansion rate falling to below 2 per cent in 2008 after chalking up a growth rate of about 2.5 per cent last year.
Thursday's ECB meeting will also mark another historic step in the expansion of the ECB's governing council, this time to 21 to include the central banks of Malta and Cyprus following their admission this month to the eurozone.
The adoption of the euro by Malta and Cyprus on January 1 brought the eurozone's membership to 15.