None of 34 economists polled by Reuters on Monday had expected the central bank to change its borrowing costs and market reaction to the announcement was muted.

The euro, the single currency launched by 11 European Union countries on January 1, was quoted at $1.0385 at 1210 GMT, nearly half a cent above a lifetime low of $1.0342 touched earlier in the day.

Economists attributed the euro's softness to the contrast between sluggish economic performance of the euro area and runaway growth in the United States, where expectations are hardening of a rise in interest rates to keep a lid on inflation.

Given that inflation in Euroland is subdued, many economists believe it makes sense for the ECB to let the eurodrift lower -- without propping it up through higher interest rates or intervention in the foreign exchange markets -- because it would provide welcome relief for the area's exporters.

Michael Hughes, managing director at Baring Asset Management in London, said the softness of the euro might lead to "a few embarrassed egos" but given the continent's listless economy and weak political leadership he saw no policy alternative.

"I think they can allow the exchange rate to go much further down before they feel that there's sufficient monetary stimulus," Hughes told Reuters Television.

"They're reaching the limits to how far they can cut rates anyway, and hence it has to be the exchange rate that takes the stran," he added.

The currency's decline resumed last week, prompted by an EU finance ministers' decision that effectively allowed Italy to overshoot its 1999 deficit target.

ECB officials have stressed they see potential for the euro to rise, but some market watchers have criticised the bankfor failing to quell lingering speculation that its policy on the euro remains one of neglect.

Analysts said Bundesbank President Hans Tietmeyer and his designated successor Ernst Welteke had so far been alone in making comments that have actually supported the euro.

Tietmeyer said last Friday he would "not be happy" if the euro fell further.