No rates rise until April - ECB

Interest rates may not move up again until April, according to key European Central Bank and Bundesbank officials.

But the suggestion that rate hikes may be further off than predicted pushed the euro back below parity with the dollar yesterday after two days above the psychologically important level.

The euro fell to $0.9959 from $1.0037 and to 62.20p against sterling from 62.52p. As a result, the pound closed at 78.98p against sterling from 79.38p. The reversal will do little to ease inflationary fears in the Republic.

Dr Dan McLaughlin, chief economist at ABN-Amro, said the ECB's policy was now a "mystery wrapped in an enigma".

Only a few days ago the Bundesbank chief, Mr Ernst Weltke, said monetary conditions were accommodative even after the recent rate increase and would not hamper economic recovery. The market took that to mean there would be a rate rise - probably as early as next Thursday. The euro bounced, as a result, rising above parity for the first time in four weeks.

But yesterday the ECB vice-president, Frenchman Mr Christian Noyer, told the Wall Street Journal in an interview that financial markets may be reading too much into statements by ECB officials and could be mistakenly concluding that it was trying to prepare markets for interest-rate rises in the near future.

Mr Welteke's chief adviser and Bundesbank council member Mr Klaus-Diter Kuehbacher then went even further, explicitly stating that nothing would happen until April.

That is a very clear and unambiguous statement from a central banker and the euro fell rapidly below parity as a result.

But according to a report released yesterday by the Federation of German Banks, the euro was about 20 per cent below its purchasing power parity to the dollar. Using 1991 as a base year, and factoring in purchasing power development since then, the euro should be valued about 2 per cent higher than nine years ago, the federation said.