European Central Bank Holds Rates at 1.25%

The European Central Bank as expected held interest rates at 1.25 percent on Thursday ahead of a news conference which analysts believe will signal a rise is likely next month.

Annual inflation in the common currency area was 2.7 percent last month, well above the ECB's medium-term target of just below 2 percent.

Nevertheless, all 74 economists in a Reuters poll had predicted the ECB would leave rates at 1.25 percent after it increased official borrowing costs for the first time in two years in April.

ECB President Jean-Claude Trichet will talk about the reasoning behind the bank's decision at a news conference starting at 1230 GMT.