EU: interest rate cut ruled out

In an interview given to the German weekly, Boerse Online, to be published on Thursday, Juergen Stark, Vice-President of the Bundesbank, declared: “A new interest rate cut by the European Central bank is not probable in the near future”.

He is confident that the reaction of the ECB to the current economic setting was sufficient to stabilise the economy within the EU Member States and that the road ahead had been cleared for sustained growth.

Juergen Stark added that “Since May of this year, the ECB has lowered its rates by 150 base points. However, the truth is that the effects of monetary policy are felt only 15 to 18 months later”.

He said that ECB policy had not been restrictive, “but expansive” and that this would lead to sustained economic growth in the future. For this reason, the Vice President of the Bundesbank called on those who advocate interest rate cuts to be patient and to wait for results.

Most analysts back up Herr Stark’s vision for the near future and predict that the ECB will not lower its rates in the next fortnightly meeting, which is to be held next week, the last such meeting of the year.

However, the analysts also point out that there may be a cut in rates in the first quarter of 2002.