Germany appeals for European rate cut

Germany today urged the European central bank (ECB) to lower interest rates, as its economy slowed to a crawl.

Siegmar Mosdorf, a German deputy economy minister, said that lower inflation and a rate cut by the ECB would help revive Europe's largest economy, which is likely to fall short of its growth target of 2%.

During a radio interview, Mr Mosdorf said he was sure German inflation would continue to fall, after July figures released yesterday showed inflation was down by 0.5% from 3.1% in June.

"That opens room for the purchasing power of people in Germany and, above all, for the European central bank to reduce interest rates in autumn," he said.

"Both would do the economy good and would also relieve us a bit."

Most analysts expect the ECB to cut rates in the third quarter, although they are divided on whether a move will come as soon as this month.

Germany's open appeal for the ECB to lower the cost of borrowing comes as the bank admitted that risks to growth in the eurozone "remain sizeable" in the second half of this year.

Despite sound economic fundamentals in the eurozone, the decline in inflation, tax reductions, and the uncertain outlook for the world economy will continue to cloud prospects for the eurozone, the ECB said in its August monthly report.

"There remains significant uncertainty arising mainly from the deterioration of world prospects, but also from the potential impact on domestic demand of changes in confidence," it said.

Despite recent calls for it to cut interest rates to bolster the slowing eurozone economy, the ECB made clear that it would keep focusing on price stability as the best way to support economic growth. But it left the door open to rate cuts.

"The present stance of monetary policy is considered appropriate to ensure price stability over the medium term. At the same time, there is a need to closely monitor developments that may affect this assessment," the ECB said.

The ECB last changed interest rate on May 10, when it cut rates by 0.25% to 4.5%.

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