Brussels, 20/09/2001 (Agence Europe) - In the editorial of its September newsletter, the European Central Bank (ECB) said that its Governing Council believed that "the fundamental strength and resilience of the US economic system" would "not be impaired by recent events" (in the United States), but that they were likely to "weigh on confidence in the euro area and on the short-term outlook for economic growth. At the same time, this should further reduce inflationary risks in the euro area". The ECB said that "a reinterpretation of the (Stability) Pact must not be considered" and there should be no change in the determination of governments to closely adhere to it. "Scope to let the automatic stabilisers work fully exists only in those countries where budget positions are close to balance or in surplus", said the Bank.
The ECB gave a relatively reassuring message, "Given the strong fundamentals of the euro area, the Governing Council remains confident that the showdown in economic growth will be short-lived" and outlined the measures taken following the attacks, namely cutting the minimum bid rate on the Eurosystem's main refinancing operations by 50 basis points to 3.75% (also cutting the marginal lending facility rate to 4.75% and the deposit facility rate to 2.75%, to apply from 18 September onwards); several liquidity-providing fine tuning operations to smooth operations in the euro money market; a swap agreement with the US Federal Reserve System; and providing dollar deposits to the national central banks of the Eurosystem.
The ECB noted in its monthly newsletter about the first pillar of its monetary policy strategy that, "Recent increases in M3 growth may be transitory". The three-month average of the annual growth rates of M3 was 5.9% in the period from May to July 2001 (compared with 4.6% in February/April), but the ECB noted that this figure needs to be corrected for holdings of money market paper and short-term debt securities (2 years or less) by non-euro area residents. The corrected M3 growth rate was slightly over 5%, close to the reference value of 4.5%. As regards the second pillar, "already prior to the events of 11 September, the information available signalled lower inflationary pressures from the demand side. Euro area real GDP growth slowed in the first half of this year by more than was projected a few months ago". "On the domestic demand side, the negative impact on real disposable income of the increases in oil and food prices has been stronger than expected." The ECB continued, "On the external side, the slowdown in economic activity in the United States and the persistent economic weakness in Japan, as well as the spillover to other regions of the world, have been greater than previously anticipated". The ECB expects inflation to fall "as the direct and indirect upward effects from the past increases in energy and import prices fade out".