Brussels, 06/06/2002 (Agence Europe) - At its meeting on Thursday, the Governing Council of the European Central Bank (ECB) decided not to change interest rates. The minimum bid rate will remain at 3.25%. The marginal lending rate and deposit facility rates remain unchanged at 4.25% and 2.25% respectively. As was the case at their previous meeting, ECB President Wim Duisenberg mentioned the risks to price stability. This time, he also mentioned the ill effects of the pay rises awarded in Germany.
At a press conference Wim Duisenberg justified the ECB decision to not change interest rates by explaining that despite the recent fall in inflation, "the outlook for price stability in the medium term remains less satisfactory than expected a few months ago. However, the economic outlook is still subject to uncertainty" although eurozone indicators are moving towards an increase in growth and a greater internal demand. Forecasts suggest that "real GDP growth in the euro area should again be in line with potential growth later this year, with a further increase expected in 2003", adding that it make sense to think that economic growth will hit targets in 2002 before improving again in 2003. He said that the situation had moved from contraction in the final quarter of 2001 to slightly positive growth in the first quarter of 2002.
Duisenberg was prudent in his interpretation of the euro's recent rise on the currency markets, noting that in recent weeks the euro had risen on the markets which will make it possible to contain inflationary pressure, but it was still too early to assess the impact of the changes in the exchange rates on prices. He again expressed concern at the "outcome of recent wage negotiations" in Germany, "in view of the negative impact this could have on continued employment creation… competitiveness, employment growth and consumption", not wanting high wage increases to spread across the eurozone and give rise to inflationary pressure. Duisenberg called on Member States to "honour the commitments made to achieve balanced budgets by 2003/4… and to push ahead with reforms relating to the size and structure of public expenditure and revenue, which will also create room for further tax cuts and absorb the fiscal costs of population ageing". He repeated that "regarding fiscal policies in the euro area, it is vital that all Member States maintain a medium-term perspective in compliance with the framework of the Stability and Growth Pact. Maintaining such a perspective will lead to a successful transition to budgetary positions close to balance or in surplus and to a smooth functioning of automatic stabilisers in all member countries".
Duisenberg responded to reporters' questions on the following topics: