`Global rate cut not the answer' - ECB
Wednesday 23 September 1998
Speaking to the European Parliament, Wim Duisenberg argued that interest- rate cuts were not the answer to the global economic crisis, which he believes will "dampen" European growth next year. The ECB chief said Italy, Spain and Ireland would all have to cut rates substantially before year- end.
Disappointing the City, Mr Duisenberg did not detail how ECB monetary strategy will work when it comes into force.
He said: "We in Europe are very much in the process of the run-up to monetary union. We don't want this process to be interrupted by moves in interest rates, co-ordinated with whoever, and especially not with those with significantly higher interest rates."
Mr Duisenberg's remarks were echoed later by Jean-Claude Trichet, governor of the French central bank and member of the ECB governing council. Mr Trichet said cuts were not on the agenda for France or other core European countries.
Mr Duisenberg yesterday repeated his view that European short-term rates would converge by the end of the year.
The ECB chief said the so-called "convergence rate" will be close to 3.3 per cent, the short-term rate prevailing in Germany and France. This implies a substantial loosening of monetary policy in Ireland, Italy and Spain, where rates are 6.19 per cent, 5 per cent and 4.5 per cent respectively.
City analysts expect the ECB's monetary policy strategy to be a combination of monetary growth targeting and inflation rate targeting.
David Mackie at JP Morgan said: "There is little difference, at least in practical terms, between targeting money supply and targeting inflation. If they cannot agree on this relatively simple question, how are they going to be able to agree on setting interest rates, which is much more difficult?"
William McDonough, a US Federal Reserve governor, said the balance of economic risks had shifted from inflation towards inadequate growth, reigniting market hopes of an early easing in US interest rates.
On co-ordinated cuts, however, Mr McDonough said there were "sufficient differences in the conditions of G7 countries that a co-ordinated cut in interest rates probably would not directly serve the purpose of sustained economic growth in each of the countries".
Outlook, page 19
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Germany sees 'visible rise' in support for far-right extremism in response to perceived 'Islamisation' of the West
iJobs Money & Business
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...