The European Central Bank kept its core lending rate at 4%, as widely expected Thursday, but ECB President Jean-Claude Trichet signaled a rate rise in September by stating the bank would remain strongly "vigilant," when speaking at press conference.
Thirty-nine of the 45 economists polled by Dow Jones said they expect to see the benchmark rate at 4.25% by the end of the third quarter.
"The ECB has prepared the markets (to expect) another rate hike in September," Holger Fahrinkrug, chief economist at WestLB, told "Worldwide Exchange."
Euro Zone Inflation
Inflation in the euro zone has been within the ECB's guidelines of an annual rate of just under 2%, easing to a rate of just 1.8% last month from 1.9% in June.
Unemployment in both the 27-nation European Union and the euro area held steady in June at a record low of 6.9%.
The bank determines interest rates for the 13-nation euro zone, which has more than 318 million residents and accounts for over 15% of the world's gross domestic product.
Trichet told German newspaper Die Zeit last week that the recent major market shifts had been just a "healthy correction."
"I remain cautious. It is no time for complacency," Trichet added.
U.K. Rates on Hold
The Bank of England held its core lending rate steady at 5.75% Thursday, as widely expected.
Inflation in the U.K. remains above the central bank's target, leading many economists to expect further rate hikes in the coming months, but the full effect of previous hikes is yet to filter through to the British economy.
All 61 economists polled by Reuters ahead of the decision expected the bank to hold, and more than half of those think the cost of borrowing will reach 6% by the end of 2007.
"Although inflation is coming down, it's not coming down at the rate the bank projected … there will be, for some time, an upside bias for interest rates," Ross Walker, U.K. economist at Royal Bank of Scotland, told "Power Lunch Europe."
And the prospects of a deteriorating lending market are not expected to reverse the central bank's plans to hike later in the year.
The hold is potentially good news for U.K. homeowners, who are currently paying more to service their mortgages than any at point in the last 15 years.