The euro fell to its lowest levels against the dollar in the past two months in the wake of bad news coming from the European Central Bank, particularly about the bleak prospects of the eurozone economy.

The ECB announced at the end of its monthly meeting that it would be keeping its interest rates unchanged at 1.5 per cent in view of high levels of inflation and signs of economic stagnation.

Earlier this year, economists were predicting a rise in interest rates by the end of the year. However the scenario has turned bleak with the ECB signalling no changes, at least for the coming months. It increased interest rates twice this year.

Addressing a press conference, ECB president Jean-Claude Trichet did not mince his words. He said inflation was still expected to keep rising until the end of this year and the Bank had revised downwards its economic growth projections for the rest of the year as dark clouds loomed on the horizon.

“A number of developments seem to be dampening the underlying momentum in the euro area, including a moderation of the pace of global growth, related declines in equity prices and in business confidence and unfavourable effects resulting from ongoing tensions in a number of euro area sovereign debt . As a consequence, real GDP growth is expected to increase very moderately in the second half of this year,” Mr Trichet said.

The latest ECB economic projections for the euro area now foresee annual real GDP growth ranging between 1.4 and 1.8 per cent in 2011 and between 0.4 and 2.2 per cent in 2012.

Data released by Eurostat earlier this week already indicated a slowing eurozone economy. After reporting an average growth of 0.8 per cent in the first quarter, the eurozone’s economy struggled to reach a growth of just 0.2 per cent between April and June.

Malta posted the best economic performance in the eurozone in the second quarter, reporting a growth of 2.8 per cent. However, an EU official warned that the weakening of the eurozone economy would, at the end of the day, affect all 17 members of the area.

Meanwhile, both the European Commission and the ECB avoided commenting on Moody’s downgrade of Malta’s bonds and its negative outlook.

The Commission’s spokesman for economic and monetary affairs said it “does not comment on ratings given by Moody’s or any other agency”. When it was pointed out that this was not the case with regard to other eurozone members – the Commission commented on the recent rating agency downgrades of Portugal, the spokesman said that was justified “by the timing of the rating” as it coincided with the announcement of a serious fiscal consolidation package by Portugal.

“As a general rule, we don’t comment on specific ratings,” he insisted.

This autumn, the Commission is expected to make new proposals aimed at further regulating the rating agencies’ sector to increase transparency and prevent conflicts of interest.

The Commission has often said it was not satisfied with the situation and with the way credit agencies operated.