Mr Wim Duisenberg has ignited fresh speculation of lower interest rates in Europe, saying there were times when monetary policy could play a role in growth and employment.

Markets seized on the remark by the European Central Bank (ECB) president, made during a speech in London, despite the fact that he also stressed the standard line on the need to focus on inflation.

Mr Duisenberg said the only major area where rate decisions could make a difference was inflation, and that stable prices were the key to growth.

However, markets have been uncertain whether interest rates for the euro bloc will be lower than the 3.3 per cent rate currently prevailing in Germany. Irish rates are falling towards this 3.3 per cent level.

"In specific circumstances, if production, inflation and employment all move in the same direction, monetary policy can play some role in stabilising output and employment growth, without endangering price stability," Mr Duisenberg said.

His comments follow statements by the 11 euro-zone finance ministers earlier this week that a more accommodative monetary policy was needed to support government efforts to tackle Europe's unemployment problem.