Rate cut unlikely in near future

The president of the European Central Bank, Mr Wim Duisenberg, has once again defended the ECB's refusal to cut European interest rates and has given a strong hint that there will be no cut in rates in the near future.

Speaking at the G7 meeting in Washington, Mr Duisenberg hinted that the persistence of such "one-off" factors in inflation as the upward pressure on food prices associated with foot-and-mouth make it unlikely the ECB will be any more amenable to rate cuts in the near future.

"I do believe it is now widely understood that with actual inflation well above the medium term goal - and with the next figure likely to bring us further away from the 2 per cent goal - that a move on interest rates in that context would not enhance the credibility of the ECB."

Mr Duisenberg, who has faced public criticism in recent weeks for not assisting European growth with an interest rate cut, said he had faced no such pressure at the G7 meeting.

At the meeting finance ministers and central bankers from the G7 leading economies expressed quiet confidence in the prospects for the global economy. "Although global growth has slowed over the past year, the foundations for economic expansion are sound," said a joint statement issued after the meeting. "In fact, the prospects for improving the world standard of living are compelling," the statement added, hinting perhaps at surprise US Commerce Department figures issued on Thursday suggesting US growth of an annualised 2 per cent in the first quarter.

The US Treasury Secretary, Mr Paul O'Neill, said at a briefing following the meeting that "there was a sense of real optimism" on global growth among participants.

The statement from the ministers and central bankers from the G7 countries - the US, Britain, Canada, France, Germany, Italy and Japan - was carefully crafted to shore up confidence that a slowing global economy would not slide into recession.

But it was clear from comments by a number of officials there is still considerable concern about Japan's performance and its failure to tackle the virtual bankruptcy of its banking system because of the staggering level of bad debt - put at some $263 billion (€295 billion).

Among the other issues discussed was also the prospect for a major initiative on AIDS which the Italians hope may be announced in Genoa at the next meeting of G7 in July.

Observers say there is a broad willingness to consider a massive increase in funding from the developed countries.