Central bank 'unlikely to touch interest rates'

With attention focused on the launch of euro cash, the European Central Bank is today expected to avoid further excitement and leave key interest rates unchanged for the 12 countries using the new currency, economists say.

The Frankfurt-based bank last cut rates on November 8, and many expect it to reduce the cost of borrowing further in the coming months.

But recent comments from ECB President, Wim Duisenberg, suggest it will wait for more data on Europe’s sluggish economy before moving again.

Moreover, the debate about interest rates has been overshadowed by the introduction of euro notes and coins.

Duisenberg is to hold a special news conference on the progress of the massive logistical task ahead of his usual briefing on monetary policy.

‘‘They don’t want to surprise markets in a situation where they want to create a calm environment for the introduction of euro notes and coins,’’ said Michael Schubert, an economist at Commerzbank in Frankfurt.

Amid reports that the changeover in banks, stores and businesses was going without major hitches, the euro’s exchange rate against the dollar rose sharply by 1.6% to 90.36 US cents.

Schubert said it was recovering ground lost in preceding days due to uncertainty over the transition.

‘‘Now we see that nothing has happened, everything has gone well, and the euro has gone back up to where it was in the middle of December,’’ Schubert said.

ECB officials and some economists say currency markets are still pricing the euro too low against the dollar, arguing that the trade performance, interest rates and growth prospects speak in the currency’s favour.

‘‘A strong euro is in the interest of the European economy: we need a euro that inspires confidence and I think we have achieved that,’’ Jean-Claude Trichet, the governor of the Bank of France and a member of the ECB policymaking council, said.

Some economists also argue that another interest rate cut would bolster the euro, which is still down by about 25% from its peak.

Lower rates could stimulate economic growth eroded by last year’s global slowdown and the wave of layoffs that followed the September 11 attacks.

The ECB cut rates only four times last year, compared with the 11 reductions by the US Federal Reserve.

But Duisenberg has damped expectations for imminent further reduction, saying in an interview with Germany’s Handelsblatt newspaper before Christmas that another cut could follow a more optimistic inflation forecast - but no such forecast has been issued so far.

‘‘The signals we’re getting are very much that the current level of interest rates is appropriate,’’ said Nigel Anderson, an economist with RBS Financial Markets in London.

Twenty-one of 23 economists surveyed by Dow Jones Newswires predicted no cut, though some said one may come in February or March after additional evidence comes in on inflation and the extent of the continent’s economic malaise.

Lower oil prices have helped inflation in the countries using the euro sink to 2.1 percent in November, down from an eight-year high of 3.4% in May.

Duisenberg has said he expects it to fall below the bank’s target of 2% this year - which could clear the way for lower rates.

On Monday, Duisenberg expressed the hope that growth would pick up also because of the euro.

Econometricians - economists who design statistical models of the economy - forecast the currency could boost growth by as much as 1% a year, he said.

‘‘Don’t believe the econometricians all the time, but if they are even half right a half-point extra to economic growth is a tremendous achievement,’’ Duisenberg said.