ECB chief hints interest rates will stay on hold

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The Independent Online

Wim Duisenberg, president of the European Central Bank, yesterday dropped a strong hint that he will not cut European interest rates this week.

Mr Duisenberg, whose bank sets rates for the 12 countries using the euro, said after a meeting of Group of Seven finance chiefs in Washington that current rate levels are consistent with the ECB's goal of combating inflation.

A second interest-rate cut to lessen the economic fallout of the 11 September terrorist attacks was not necessary because rates were at the "right" level, he said.

Without any new information to alter the picture, "this monetary policy is the right one", Mr Duisenberg added, as Europe's economy would be "in an upward mood again" by the year-end due to persistently low inflation, a sound balance of payments, wage moderation and tax cuts.

The ECB lowered its benchmark interest rate by half a point to 3.75 per cent on 17 September, following a similar move by the US Federal Reserve Board. The ECB meets again this Thursday.

Mr Duisenberg said that setting interest rates now was "a complex and extraordinarily difficult exercise". Growth in one of the ECB's two main policy yardsticks, the M3 measure of money supply, had been "very strong" in the past month and had to be monitored.

He said the ECB would not have lowered rates when it did had there been no terrorist attacks. The reduction in interest rates would have happened "at least 10 days later", and would have been "of a smaller magnitude".