Frankfurt - The European Central Bank (ECB) is expected to keep rates on hold Thursday despite signs that inflationary pressures are easing and fears are growing that large parts of Europe's economy are edging towards recession.

The Frankfurt-based ECB raised its benchmark refinancing rate by 25 basis points to 4.25 per cent in July to ward off the threat posed by resurgent inflation.

As a result, ECB Jean-Claude Trichet is expected to reiterate at his regular monthly press conference following the bank's rate announcement the ECB's worries about high inflation triggering a wage-price spiral.

Apart from talking tough on inflation, Trichet is also set to unveil on Thursday a new round of ECB growth and inflation forecasts as part of the bank's so-called staff projections.

But the question for financial markets is how far the ECB's 21-head rate-setting council is prepared to go in its tough anti-inflationary rhetoric when eurozone states such as Spain, Italy and Ireland already appear to be on the brink of recession.

The European Statistics office said last week annual inflation in the eurozone dropped more than expected to 3.8 per cent in August from a record 4.0 per cent in July indicating that consumer prices in the currency bloc might have peaked.

At the same time, oil prices have continued to pull back from record highs of around 150 dollars a barrel in July to drop below 110 dollars.

Nevertheless, inflation in the 15-member eurozone still remains at almost double the ECB's annual inflation target of close to but under 2 per cent. (dpa)