Brussels, 08/11/2001 (Agence Europe) - The Governing Council of the European Central Bank (ECB) decided on 8 November to cut its leading interest rates by 0.5 percentage points. The ECB's main leading rate, the minimum bid rate on the main refinancing operations of the Eurosystem has been reduced from 3.75% to 3.25%, its lowest level since February 2000. This brings the reduction of the ECB's rates to 1.50 percentage points since the beginning of the year. The marginal lending facility and the deposit facility have been set at 4.25% and 2.25%, respectively. The ECB considered that the current level of its interest rates continue to be appropriate to ensure a sound perspective for price stability in the medium-term.
At a press conference, ECB President Wim Duidenberg justified the Governing Council's decision notably by the fact that "inflationary pressures have continued to ease". "We can now expect price stability (…) to drop below the 2% at the beginning of next year", he stipulated. He also placed emphasis on the weakness of the economic activity in the euro zone, forecasting that growth "will be weak in the second half of 2001". The slowdown in the growth of the GDP in Europe is accentuated by "the context of a durable weakness in the world economy which weighs on demand for exports in the euro zone" and by "great uncertainty" resulting from the terrorist attacks. This uncertainty could have the effect of "delaying investment activities, and even have a negative influence on growth in private consumption in the euro zone", Duisenberg explained, expecting European growth "to remain below its potential for part of next year".
The President of the ECB made a point of stressing that there were however good reasons to expect a recovery in activities in 2002 and growth that "would return to a more satisfactory level". According to him, "the uncertainty that currently hangs over the world economy should dissipate, and there are no major imbalances in the euro zone that would require a long-term adjustment". He then added that economic policies "in the euro zone as a whole remain geared towards price stability, the objectives of the Stability and Growth Pact, wage moderation and structural reform", and should benefit from the impact of tax reductions and favourable financing conditions.
As for price developments in the euro zone, recent developments "confirm our earlier expectations of a gradual decline in inflation rates, resulting from the unwinding of the previous increase in energy prices and the absence of further shocks to food prices", said Mr. Duisenberg. The latter, moreover, identified two factors that support the view that wage developments were less of a risk than was previously the case: - the slowdown in economic activity which should contribute to containing inflationary pressure stemming from the labour market; - the increase in consumer price inflation seems to have been temporary. Concerning the first pillar of monetary policy, he has never been concerned at the further acceleration in M3 growth in September, which was a reflection of an increased liquidity preference of investors in an environment of a relatively flat yield curve.
In addition, the institute in Frankfurt announced that, henceforth, the ECB will only take its decisions on the level of its rates once a month (at the first meeting of the month), and no longer every two weeks. At the second meeting of the month, the Governing Council will essentially examine issues linked to other ECB tasks and responsibilities (payment systems, surveillance). Asked by journalists to explain these changes, Duisenberg said: "we have the impression that the twice-monthly meetings lead to speculation every two weeks and increased volatility on the exchange rate markets, more so than would be the case if the rhythm of meetings was less sustained".