ECB says no need to cut rates

EUROPEAN Central Bank council member Ernst Welteke has said there is no reason to lower borrowing costs for now as three interest rate cuts in the past eight months should be enough to spur an economic recovery.

“I see no need to act at the moment,” Mr Welteke said in Frankfurt.

He said “the conditions are there for stronger growth” in the dozen countries sharing the euro.

Mr Welteke’s comments echo those of ECB President Wim Duisenberg and Bank of Greece Governor Nikos Garganas, who said this month that rates are low enough to boost growth this year. The ECB last month pared its benchmark rate to 2%, the lowest for any of the euro nations in more than half a century.

The ECB expects the euro region’s $7.8 trillion economy to grow between 1.1% and 2.1% next year after expanding as little as 0.4% this year. German business confidence exceeded economists’ forecasts in June and the benchmark DAX Index has surged 53% since falling to a seven-year low in March. “There are a few signs of improvement, but you certainly can’t say that the turnaround has been achieved,” said Mr Welteke, who also heads the Bundesbank.

European stocks declined after Mr Welteke’s comments. The Dow Jones Stoxx 50 Index slipped 1.1% to 2378.16 at 4.23pm in Frankfurt. Europe’s largest economy, Germany, failed to rebound in the second quarter from a contraction in the previous three months and there are no signs to suggest a recovery soon, the Bundesbank said yesterday. European manufacturing shrank for a ninth time in 10 months in June.

The ECB may be more willing to reduce borrowing costs after its internal staff projections are completed in September. The bank’s last three rate cuts came after it pared growth forecasts.

“Theoretically, we always have room for manoeuvre, should an economic recovery fail to materialise,” Mr Welteke said. But he also asked “why should further rate cuts have a positive effect?” Mr Duisenberg has said the bank has “done its part” to boost the economy and governments should do more to loosen their labour markets and make investment more attractive.