ECB stays quiet over interest rate changes

Wim Duisenberg, president of the European Central Bank, kept financial markets guessing about the future of euroland interest rates.

Mr Duisenberg said some inflationary risks were fading due to the strong recovery of the euro against the dollar and the fall in the oil price.

But the ECB remained concerned by the tightness of the labour market in parts of the eurozone. "So one cannot draw specific conclusions at the moment, not even for the near future. I will not signal an interest rate bias of the central bank," Mr Duisenberg told the German financial daily Börsen-Zeitung.

The ECB raised interest rates this year to combat the weakness of the euro and the surging oil price, but has shifted to a neutral stance in the past few weeks amid growing evidence of a US-led slowdown in global growth.

Some analysts say that the ECB would already have followed the US Federal Reserve by lowering rates, but it feared undermining the euro.

Asked if financial markets had been wrong to expect an ECB rate cut in the first half of 2001 after seven rate increases since November 1999, Mr Duisenberg replied: "I will leave it up to markets what they expect. I don't want to give them pointers in one direction or the other."

Improving communication is one of the bank's biggest challenges and ECB officials have to discipline themselves. "I expressly include myself in that." Duisenberg has repeatedly come under fire himself for appearing to misread the mood of the markets.

The eurozone is to welcome its 12th member, Greece, which joins the currency zone on Monday. The drachma, Europe's oldest currency, will enter the single currency at 340.75 to the euro.

To bring its interest rates in line with the ECB, the Bank of Greece cut its benchmark interest rate by one percentage point to 4.75% on Wednesday. It was the ninth this year and the fourth this month.

After surging to a five-month high above 93 cents, the euro was down fractionally against the dollar yesterday, trading at around 92.80.

But with the increasingly gloomy outlook for the US economy, underlined by figures showing US consumer confidence sinking in December to its lowest level in more than a year, analysts expect the euro's rally to continue.

Now up by more than eight cents since November, HSBC is predicting the currency will rise to $1.05 by the end of next year.

In an article in the German Handelsblatt newspaper the German chancellor Gerhard Schröder expressed his optimism. "The outlook for the euro next year is favourable, putting the turbulence of the previous year behind it."