European Central Bank president Mr Wim Duisenberg said today he expected euro zone inflation to fall below its two per cent tolerance ceiling in May 2002.
Mr Duisenberg added that he saw no need for a larger role for either the ECB or the European Union in supervising banks after the scandal at AIB.
"That is the task of national supervisory authorities," he said when asked whether such a larger role was warranted after recent events at AIB.
Mr Duisenberg said most economic developments had been in line with the ECB's expectations and were pointing to a gradual euro zone recovery in the course of this year.
Interest rates were therefore at an appropriate level after the ECB last reduced its key refinancing rate by 50 basis points to 3.25 per cent in November 2001.
"We consider the current level of the key ECB interest rates appropriate to maintaining price stability over the medium term," Mr Duisenberg said in the speech.
He said vigilance was needed to ensure countries would meet their targets of reaching zero budget deficits in the coming years as required by the euro zone's Stability Pact.
Mr Duisenberg said the average budgetary position in the euro area had deteriorated for the first time since 1993 in 2001 and countries should aim for balanced budgets which would allow them to spend more to boost the economy in case of a downturn.
He also suggested some countries could have permanent voting rights, in a situation similar to that at the Federal Open Market Committee at the US. Federal Reserve Bank.