European Central Bank policymakers again talked down the chance of euro zone interest rates getting close to zero today, even as Brussels forecast the region's economy would slump almost 2 per cent next year.
ECB governing council member George Provopoulos said the scope for further cuts to euro zone interest rates was limited and suggested markets may have gone too far in predicting ECB rates would fall to 1 per cent in the coming months.
While there was still room to move on rates "if the markets should be expecting us to cut as far as 1 percent or even lower this is something different," Greek central bank chief Provopoulos said in an interview with news agency Bloomberg.
"We have given no such indication. The scope for further cuts will be limited," he said.
The ECB has carried out its most aggressive series of rate cuts ever in the last four months. It cut benchmark credit costs another 50 basis points to 2 per cent last week, bringing them level with an all-time low.
With the recession continuing to deepen, analysts expect another 50 basis point cut in March, according to the latest Reuters poll [ECB/INT], and the majority expect rates to bottom out at 1 percent later this year.
Mr Provopoulos and Austrian counterpart Ewald Nowotny also joined ECB President Jean-Claude Trichet in saying they saw no prospect of zero interest rates in the 16-nation region, despite a worsening economic outlook.
"The ECB has no interest in interest rates going down to zero," Mr Nowotny told local broadcaster ORF in a radio interview, conducted last week but broadcast today.
The European Commission cut its forecasts for the euro zone further today, predicting its economy would shrink almost 2 per cent this year, almost double the ECB's worst case scenario, and said it expected a bumpy road ahead for would-be euro nations such as Poland and the Czech Republic.
Reuters