Brussels, 05/06/2003 (Agence Europe) - In a context of falling inflation and sluggish economic growth in the Euro zone, the European Central Bank (ECB) decided on Thursday, during a meeting of its Board of Governors, to lower interest rates by 50 basis points. Hence the minimum submission rate applied to major financial transactions is brought from 2.50% to 2.00% (after 9 June for operations settled after this date), a level that has never been attained in the Euro zone since the end of the Second World War. As from this Friday, the minimum lending rate is reduced from 3.50% to 3.0% and that of the facility deposit rate from 1.50% to 1.00%.
The President of the ECB, Wim Duisenberg, declared, "We have concluded that the outlook for price stability over the medium term has improved significantly over the medium term since our last decision to lower interest rates in March". According to Duisenberg, the reasons behind today's decision is that, "this decision is in line with our monetary policy strategy, including the aim of maintaining inflation rates below but close to 2% over the medium term". He acknowledged that this lowering of interest rates took into account the risks to economic growth. The most recent statistics demonstrate that economic growth over the six months of this year were "very weak" and that forecasts for 2003 and 2004 would be reduced downwards, indicated Mr Duisenberg, who announced that the ECB would be publishing its new forecasts for 2003 and 2004 next week. The ECB is expecting gradual growth in GDP for 2003, which is expected to pick up in 2004, repeated Mr Duisenberg. The main factors backing up this analysis were both external and internal. On the external side, "the expected upturn in extra-Euro area demand should compensate for the dampening effect of the appreciation of the Euro". In this context, Mr Duisenberg explained that, "the significant and rapid appreciation of the euro over recent months will dampen external price competitiveness. However, the current level of the euro's real effective exchange rate, and thereby the competitive position of euro area exports, is very close to longer-term advantages". He concluded that, "current euro exchange rate levels are in line with economic fundamentals and with our interest in a strong and stable euro". The President of the ECB was also keen to point out that at this stage there was no reason for worrying about risks of inflation.
In replies to journalists, Mr Duisenberg indicated that there had not been enough discussion about the scale of falling rates but that there had been a rapid and broad consensus on the principle for this reduction and also on its scale. On the issue of whether the ECB still had room for manoeuvre for lowering levels, Mr Duisenberg explained that if the USA had room for manoeuvre with levels that were even lower than in Europe, then it would be possible to imagine that the euro zone's room for manoeuvre was not yet exhausted.