Words not deeds

21 June 2005 By Edward Hadas

Noone wants to be the scapegoat for eurozone stagnation, so it’s no surprise the bank is sounding flexible. But don’t expect anything more than talk. With real rates at zero and the euro down 10% from the peak, the ECB is unlikely to cut further.

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European Central Bank policymakers are waiting for more data before considering whether an interest rate cut can be justified, according to a report by Reuters, based on unnamed sources.

"Growth is faltering and the overall inflation outlook is benign," said one source, "so the arguments against a cut don't look very strong. Confidence is a major problem and it is not at all clear how to overcome it. The ECB's line that structural reforms and budget consolidation are the answer haven't produced much effect.

The sources expected a discussion of a rate cut as soon as September.

An article entitled "Issing points to a rate cut" appeared in last week's issue of the German magazine Der Spiegel. It was based on an interview with Otmar Issing, the European Central Bank's chief economist. The ECB later denied that Issing's comments should be interpreted as indicating that rates would be cut.

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