The decision was basically certain after ECB governing council member Gertrude Tumpel-Gugerell made a rare comment on monetary policy just before the meeting, one of two held yearly outside Frankfurt.

Tumpel-Gugerell told a conference in Austria Monday that the ECB’s current monetary policy stance was “appropriate,” a code word for no change in the near future.

“The ECB will keep rates on hold this week and in most of 2010,” ING senior economist Carsten Brzeski and many others concluded.

The eurozone is set to pull out of recession in the third quarter of this year, but a recovery was not risk-free, influential ECB council member Axel Weber said Tuesday.

“We’re only seeing green shoots … downside risks remain,” Weber, who is also head of the German central bank, told an International Monetary Fund meeting in Istanbul.

Both he and Tumpel-Gugerell said measures taken by the ECB to boost growth, including massive supplies of cash to eurozone banks, should remain in place until a recovery was ensured.

In Britain, the Bank of England was also expected to keep its key rate at a record low of 0.50 per cent on Thursday.

Attention turned in the meantime to foreign exchange markets.

On Tuesday, the dollar fell further owing to expectations of US interest rates staying low for awhile and a media report that Gulf states could stop using the US currency for oil transactions.

The euro traded for 1.4743 dollars, a two-week high, and ECB president Jean-Claude Trichet told media on Monday that “other currencies, in particular currencies of the emerging world, should appreciate.”

Trichet was probably referring to Asian currencies, and the comment marked a change from his normal practice of noting only that US authorities supported a strong dollar.

Weber also pointed Tuesday to a need for “greater foreign-exchange flexibility in some emerging economies.”

Many Asian nations, including China, keep their currency’s exchange rate essentially pegged to that of the dollar.

Brzeski at ING told AFP: “It is remarkable how outspoken Trichet and other governing council members have been on the exchange rate in recent days.

“They are increasingly becoming concerned with the strength of the euro for two reasons: the recovery and global rebalancing.”

Official distortion of exchange rates prevents markets from absorbing global trade and savings imbalances, a factor behind the financial and economic crises, Adrian Blundell-Wignall of the Organisation for Economic Cooperation and Development told AFP last month.

And if the euro’s rise in value persists it will hamper eurozone exporters, especially in weaker performing southern European countries.

“Appreciation of Asian currencies, mainly the Chinese, would smooth the rebalancing and would spread the burden more equally,” Brzeski said.

Barclays Capital economist Thorsten Polleit noted however that individuals living in the eurozone personally benefit more from a strong euro.

But the 16-nation bloc must reduce unemployment and ensure that businesses and households get enough credit to spur economic activity.

Source: AFP

Construction in the 16-nation euro region fell 0.4% from July, when it decreased a revised 1.4%, the European Union’s statistics office in Luxembourg said in a statement today. From a year earlier, output dropped 11.3%.

Builders across Europe have cut spending and jobs after a global recession eroded demand for new housing and infrastructure. Germany’s HeidelbergCement AG said this month it plans to sell at least €1bn in bonds to refinance borrowing. The European Central Bank has injected billions of euros into markets and kept its key interest rate at a record low to encourage spending and bolster the economy.

“Economic activity is still hardly racing ahead and serious obstacles remain to sustainable healthy growth,” said Howard Archer, chief European economist at IHS Global Insight in London. “Relapses remain highly possible.”

The world economy is starting to emerge from the deepest slump in at least six decades after central banks around the globe aggressively lowered borrowing costs and governments pledged 2 trillion in spending and tax cuts. The euro-area economy probably returned to growth in the third quarter, the European Commission forecast last month.

In Spain, construction declined 1.6% in August from the previous month and was down 21.1% from a year earlier, today’s report showed. After a decade-long construction boom, there are as many as 1.6 million unsold new homes in the country that may take as long as seven years to absorb, according to Madrid-based real-estate researcher RR de Acuna & Asociados. Spanish home prices fell for the sixth quarter in the three months through September and loan defaults have increased more than four-fold since the start of 2008.

Construction output in France, the euro region’s second- largest economy, also fell 1.6% in August from the previous month and dropped 11% from a year earlier. Germany, Europe’s biggest economy, saw an increase of 4.2% from July and 1.9% in the year.

The global steel market has bottomed out and will grow 9.2% next year, the World Steel Association said on October 12. The emerging markets of China and India will rebound faster than industrialized economies, which may have a “slow, painful” recovery, WSA Director General Ian Christmas said.

HeidelbergCement, based in Heidelberg, Germany, said on October 12 that it plans to sell five- and seven-year bonds in its first note issue in almost two years. Swiss rival Holcim Ltd., the world’s No. 2 cement maker which generates most of its sales in Europe, sold 1bn of debt last month.

Source: Businessday