ECB Resists Pressure to Cut Rates

The ECB has signalled that it will not bow easily to pressure for cuts in eurozone interest rates, even as fresh data showed economic growth had again lost momentum., Financial Times 1/23/2008 6:39:18 AM

Economic activity in the 15-country region has slowed to the weakest for more than two years, according to eurozone purchasing managers’ indices for January. New orders were particularly weak, pointing to a further deceleration ahead, although manufacturing output growth actually rose.

Jean-Claude Trichet, ECB president, indicated that no early shift in the central bank’s stance was likely. We have to look at what’s happening in the real economy, we have a base line scenario and at this stage I’m not going to modify this base scenario,” he said.

Mr Trichet acknowledged – as he has before – that there were downside risks to growth, but added: Particularly in demanding times of significant market correction and turbulence, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets.”

New orders growth in services remained positive but was the weakest for more than four years. New order growth in manufacturing slipped to a three-month low.

The ECB has left its main interest rate unchanged at 4 per cent since last June. It had envisaged raising rates again in September and remains seriously concerned by an inflation rate which, at 3.1 per cent, remains clearly higher than its target of an annual rate below but close” to 2 per cent. Earlier this month, Mr Trichet had warned that a pre-emptive” rate rise was possible to head-off the inflationary dangers posed by excessive wage demands.

ECB Resists Pressure to Cut Rates