European Central Bank President Mr Wim Duisenberg today said governments need to boost growth in Europe through economic reforms in testimony that dampened market hopes for further rate cuts.
The central bank president said the inflation outlook has remained largely unchanged since the ECB cut interest rates sharply last month and it will monitor the situation closely.
But in his opening remarks to the European Parliament, Mr Duisenberg gave no indication the ECB was prepared to cut interest rates next week.
Sluggish economic growth and the strong rise of the euro increased the need for euro zone governments to push through reforms to labour and product markets. Reform would also help overcome uncertainty of investors and consumers.
"Monetary policy cannot by itself generate lasting and sustainable growth and employment in the euro area," Mr Duisenberg added.
These remarks further dampened market expectations for rate cuts and sent euro zone government bond futures to seven-week lows while interest-rate futures dipped.
Recent euro zone economic indicators have been mixed, with news of a sharpening contraction in the euro zone manufacturing sector in June offsetting stronger-than-expected rises in German and Italian business sentiment for the same month.
ECB officials have said they are confident that after a weak first half, the euro area economy will recover gradually in the coming months and pick up steam in 2004.