Central bank under pressure to raise interest rate
The European Central Bank announced on Thursday to maintain its main interest rate at 2 percent for the 24th month in a row. The decision was expected, especially considering the recent votes rejecting the European Union constitution by the French and the Dutch.
The decision did not please those who have been calling for the ECB to cut interest rates to stimulate economic growth. Those who have been calling for rate cuts include the Organization for Economic Co-operation and Development (OECD), the Ifo Institute in Germany, Germany’s economics and labour minister, and several Italian ministers.
Reports that business confidence in Germany is down and that growth expectations for the eurozone in 2005 and 2006 have been revised downward have helped stimulate the recommendations that rates be cut. The OECD has recommended that the rate should fall by 50 basis points.
Such a cut is unlikely, however, considering that Jean-Claude Trichet, president of the ECB, believes that interest rate cuts would in fact hurt prospects for growth and has said that he would like to see eurozone interest rates rise as soon as conditions permit it.
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