ECB in no rush to cut rates
7 April 2004, FRANKFURT - The European Central Bank reaffirmed Wednesday that it is in no rush to change monetary policy, insisting in its April bulletin that the 12-member eurozone is on course to a modest upswing but warned of the threat posed to inflation by surging oil prices. The release of the ECB's monthly report comes just a week after the bank's 18-head rate-setting council left its benchmark refinancing rate on hold at a post-Second World war low of two percent. Indeed, the bulletin echoes commen
7 April 2004
FRANKFURT - The European Central Bank reaffirmed Wednesday that it is in no rush to change monetary policy, insisting in its April bulletin that the 12-member eurozone is on course to a modest upswing but warned of the threat posed to inflation by surging oil prices.
The release of the ECB's monthly report comes just a week after the bank's 18-head rate-setting council left its benchmark refinancing rate on hold at a post-Second World war low of two percent.
Indeed, the bulletin echoes comments made at a press conference following last Thursday's meeting by ECB chief Jean-Claude Trichet, who told journalists that despite the risks presented by weak consumer spending, the current economic situation did not call for a change in monetary policy.
While acknowledging the recent mixed set of economic data, the ECB said in its April bulletin that this only implied some short-term uncertainty and that there was no evidence to challenge the assessment "of continued, albeit modest, real GDP growth" in the eurozone.
"Looking further ahead, the conditions remain in place for the recovery to continue in 2004 and to strengthen over time," the bulletin said, adding that the current level of interest rates provided support to the recovery.
The ECB report was also hopeful that consumers would eventually start spending again, saying that private consumption would over time be fostered by an improvement in employment and employment expectations.
Despite the ECB's optimism about the economic outlook, economists have been growing concerned about the strength of the upswing taking hold in the eurozone.
This follows the release of several downbeat economic sentiment surveys and worries that high unemployment along with the on-going debate about economic and welfare reform might continue to dampen consumer spending.
A rebound in private consumption is considered crucial to underpin any pickup in growth.
Moreover, a growing number of economists believe that a weaker- than-expected recovery will force the ECB to trim rates again by the middle of the year in a bid to shore up growth and boost economic confidence.
In particular, comments made by Trichet in the run-up to last Thursday's meeting about the risks to the recovery resulting from the failure of eurozone consumers to take to the shops and showrooms have helped to fuel market speculation that an early ECB rate cut might be on the horizon.
But both the ECB April bulletin and Trichet's press conference appear to suggest that the bank is pursuing what analysts describe as its policy of wait and see so as to assemble more data on the state of the economy before changing course.
That said, however, ECB officials including Trichet and his deputy, Lucas Papademos have also indicated in recent days that the bank is prepared to act on rates should economic circumstances demand it.
Speaking Monday, Papademos said that last week's decision by the bank's governing council should not be seen as indicating the bank's stance on monetary policy in the coming months. At 1.6 percent in March, inflation in the economy built around the euro is now comfortably below the ECB's two per cent target.
But in a reference to recent stronger oil prices, the bank warned that over the coming months annual inflation rates could edge up again in the coming months as a result of higher energy prices and increases in indirect taxes.
However, the bulletin argued: "The current stance of monetary policy is in line with the maintenance of price stability over the medium term."
Subject: German news