ECB keeps key rate at 1%

FRANKFURT: The European Central Bank kept interest rates at a record low on Thursday as policy makers grapple with an oil-price shock that's driving inflation beyond the bank's limit while also threatening to damp economic growth.

ECB officials meeting in Frankfurt set the benchmark rate at 1% for a 23rd month, as predicted by all 53 economists in a Bloomberg News survey. President Jean-Claude Trichet may toughen his inflation-fighting language and leave open the option of raising borrowing costs later this year, economists said.

"Inflation fighting is definitely Trichet's first priority," said Nick Kounis, an economist at ABN Amro in Amsterdam. "A significant and sustained rise in the price of oil could derail the recovery, but at the moment the focus is on keeping prices under control."

Investors last week increased bets on ECB raising rates as soon as August after policy makers, including board member Juergen Stark, said they will act if needed to stop soaring commodity prices from driving up price expectations.