ECB president Mr Wim Duisenberg was about as hawkish as he could be in ruling out interest rate cuts at yesterday's meeting in Frankfurt.
And he gave no hint that his position could be any different in a few weeks. Many commentators had expected a rate cut, if not this week then at the next meeting on April 26th.
Belgian Finance Minister Mr Didier Reynders, current head of the council of euro-zone finance ministers, yesterday urged the ECB to put aside concerns about prices and focus on stoking growth. Germany's economics and finance ministers have said the same thing. Mr Jim Power, investment director at Friends First, said it was arguable that the euro was effectively doing the job of lower interest rates. Exports are booming in Germany and elsewhere as competitiveness picks up in the euro zone.
Indeed the euro fell slightly after the rates announcement and few expect it to pick up at least until interest rates are cut. The currency lost more than half a US cent, reaching a one-week low of $0.8812.
According to Mr Power, markets are currently rewarding economies where the central bank is perceived as being progrowth. That is certainly not a charge that can be laid at Mr Duisenberg's door. He is still pointing to inflationary dangers lurking around corners of the European economy.
Inflation across the euro zone has exceeded the bank's 2 per cent target for the past nine months. In February, the inflation rate rose to 2.6 per cent from 2.4 per cent the previous month. However, most analysts say the core rate is declining and price pressures will reduce this year as the US slowdown and falling oil prices feed through.
"Risks to price stability have diminished over the past few months," Mr Duisenberg admitted, adding: "They have not disappeared." The last time the ECB cut rates was in April 1999. It then raised rates seven times through to October last year to prevent a decline in the euro and a rise in oil prices from spurring an increase in inflation. Reducing interest rates now "depends not only on the likelihood of inflation falling under 2 per cent, but also to what extent it falls under 2 per cent", said Mr Duisenberg.
There is some speculation that the politics of succession are beginning to make themselves felt inside the ECB's Frankfurt headquarters. It has been reported that there has been jockeying for position in the past few weeks, which has complicated the message and indeed the message control from Frankfurt.
This involves not only Mr Duisenberg's anointed successor, Frenchman Mr Jean Claude Trichet, but many of the other executive board members. There are after all doubts about Mr Trichet as all depends on the outcome of the French judicial inquiry looking into Mr Trichet's role as the head of the French treasury, when the then state-owned Credit Lyonnais made massive loans which nearly collapsed the bank.
If the judicial inquiry has not cleared Mr Trichet by the autumn, it would make it difficult for him to assume the top job at the ECB. Names outside the ECB include Mr Jean Lemierre, president of the European Bank for Reconstruction and Development.
