Duisenberg fuels hope of low rates for EMU

THE PRESIDENT of the European Central Bank last night said there was "unequivocal" evidence of a slowdown in European growth, and said that no firm decision had yet been taken on the starting level of European interest rates.

"The risks as we analyse them and observe them are all on the downside," he said.

Wim Dusienberg's comments - combined with a raft of weak European economic data - raised hopes among some analysts of an early cut in interest rates in the 11 countries participating in the first wave of European Monetary Union.

However, others said that the ECB's latest forecast of Euro-area growth - around 2.5 per cent - was consistent with a "no change" policy on rates. Most in the City still expect the ECB to set interest rates at 3.3 per cent when it takes charge of European monetary policy next year - the level currently prevailing in France and Germany.

The ECB president rejected claims that the bank's decisions would not be sufficiently transparent, saying it would create openness by explaining decisions rather than publishing minutes of meetings.

According to Mr Duisenberg, the ECB was already the most open central bank in the world.

He repeated his warning to politicians that any attempt by to tamper with the Fiscal Stability Pact could damage the euro, and cautioned that government budgets were far from balanced.

Weak inflation data and disappointing European business surveys strengthened the case for an early easing of interest rates, analysts said.

Figures released yesterday showed that inflation in the 11 countries participating in the first wave of monetary union remained unchanged at 1 per cent in October.

Separate surveys of European manufacturers revealed sharp falls in activity.

Sharda Persaud, EMU expert at Paribas, said: "With 1 per cent inflation, there is basically no need for the ECB to be stubborn about not bringing rates down."