Europe rates left unchanged

FRANKFURT – The European Central Bank ignored politicians’ pleas for an interest rate cut yesterday, leaving its key refinancing rate unchanged as it waits for an expected recovery to take hold.

The widely expected decision at a meeting of the bank’s 18-member governing council left the rate, which sets short-term central bank rates to commercial banks, at 2 per cent – its level since a half-point cut last June. Fears about the effect of a stronger euro on Europe’s budding recovery have led to political pressure for lower rates, which could dampen the euro’s rise and give the economy a short-term boost.German Chancellor Gerhard Schroeder last week urged the bank to “think over interest rate reactions” to the stronger currency, and his remarks were seconded by French Prime Minister Jean-Pierre Raffarin.The euro’s value has risen about 50 per cent against the US dollar from its October 2000 low, making European exports more expensive compared to foreign competition.But the ECB, which is forbidden by its founding treaty from taking instructions from national governments, has shown little inclination to heed politicians’ hints since its launch in 1998.Some observers say such pressure could even backfire by making bank officials dig their heels in to protect their reputation for independence.All 28 economists surveyed by Dow Jones Newswires had said they expected no rate change yesterday.Bank president Jean-Claude Trichet has expressed concern about sharp swings in exchange rates but has dropped no hints that the bank is considering a rate cut.The banks says rates are already low enough to support growth.Most economists think a moderate recovery is going to happen anyway, leading the bank to raise, not cut, interest rates late this year or early next year to ward off inflation.The euro zone economy grew a sluggish 0,4 per cent last year.Before the rate decision, economist Claudia Henke at Dresdner Bank in Frankfurt said that although some early indicators have come in below expectations “this is no sign that the global recovery will occur without Europe”.- Nampa-APFears about the effect of a stronger euro on Europe’s budding recovery have led to political pressure for lower rates, which could dampen the euro’s rise and give the economy a short-term boost.German Chancellor Gerhard Schroeder last week urged the bank to “think over interest rate reactions” to the stronger currency, and his remarks were seconded by French Prime Minister Jean-Pierre Raffarin.The euro’s value has risen about 50 per cent against the US dollar from its October 2000 low, making European exports more expensive compared to foreign competition.But the ECB, which is forbidden by its founding treaty from taking instructions from national governments, has shown little inclination to heed politicians’ hints since its launch in 1998.Some observers say such pressure could even backfire by making bank officials dig their heels in to protect their reputation for independence.All 28 economists surveyed by Dow Jones Newswires had said they expected no rate change yesterday.Bank president Jean-Claude Trichet has expressed concern about sharp swings in exchange rates but has dropped no hints that the bank is considering a rate cut.The banks says rates are already low enough to support growth.Most economists think a moderate recovery is going to happen anyway, leading the bank to raise, not cut, interest rates late this year or early next year to ward off inflation.The euro zone economy grew a sluggish 0,4 per cent last year.Before the rate decision, economist Claudia Henke at Dresdner Bank in Frankfurt said that although some early indicators have come in below expectations “this is no sign that the global recovery will occur without Europe”.- Nampa-AP