As expected, due to weak economic growth, the European Central Bank held its main refinancing rate at 2 per cent for the nineteenth month in a row.
“While short-term inflationary pressures persist, they have recently diminished somewhat,” ECB President Jean-Claude Trichet said at a press conference. “we still have mixed signals, some are pointing to more robust growth, others go in the other direction.”
Many economists have made comments regarding the situation:
Bear Stearns Chief economist David Brown said, “The ECB should keep rate policy steady today but the market will be looking for half a hint of a softer line.”
“Things have gone well for the ECB with the drop in oil prices,”‘ commented Michael Schroeder, an economist with ZEW research institute. “There’s no great danger that growth will fuel inflation.”
“The UK MPC should keep rate policy steady…but there is still a better-than-evens chance that the Bank of England might be forced into another rate cut in the second half of the year.”
Bayerische Landesbank eonomist Andreas Speer said, “The ECB would like to increase interest rates to counter inflation threats.” If growth strengthens, “it will raise interest rates in June.”
BGA German exporters and wholesalers group president, Anton Boerner noted, “The labor market gives little room for the ECB to raise its benchmark interest rate.”
“There is no need for the ECB to rush into rate increases,” explained Rainer Guntermann, an economist with Dresdner Kleinwort Wasserstein. “The forecasts for 2004 and 2005 point to moderate growth. That means business is running at lower capacity and without creating inflation pressure.”
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