MercoPress. South Atlantic News Agency

Key ECB interest rates remain unchanged

The governing council of the European Central Bank, meeting in Frankfurt, decided this Thursday to keep the basic exchange rate unchanged at 2%, despite calls for reduced rates from political leaders in Germany and France.

German Chancellor Gerhard Schroeder had called for a rate reduction to cool the strong Euro against the US dollar. However ECB sources indicated that no rate (down) changes would take place unless the Euro reached 1,30/1,35 US dollars.

Actually for the first time in weeks good economic reports from the US forced the Euro below the 1,21 US dollars for the first time in three months.

A strong Euro against the US dollars acts negatively for European Union exports and could slow overall European recovery argue several EU leaders.

On making the announcement Jean-Claude Trichet, President of the European Central Bank, said that overall the Governing Council confirmed its previous assessment of a favourable outlook for price stability in the euro area over the medium term and "against this background, we concluded that the current stance of monetary policy remains appropriate. The key ECB interest rates have therefore been left unchanged at their low levels. Our monetary policy stance provides support to the economic recovery in the euro area. We will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term".

As to economic analysis supporting the decision, Mr. Trichet indicated that according to Eurostat, in the fourth quarter of 2003 real GDP in the euro area grew by 0.3% quarter on quarter, following growth of 0.4% in the third quarter. "These data confirm that a gradual recovery in economic activity in the euro area took place in the second half of 2003. More recent indicators point to moderate economic growth also in early 2004. While growth has been relatively modest so far, both external and domestic factors give reason to expect a strengthening of the recovery through 2004 and beyond".

On the external side, all recent indications confirm that global economic growth in 2004 will be robust and broadly based across different regions of the world. Overall, euro area exports should grow significantly this year and next.

"On the domestic side, the conditions for an EU recovery in private demand are in place. Over recent months there have been signs of stabilization in investment. According to Eurostat, fixed capital investment grew again in the last quarter of 2003, after recording three successive quarter-on-quarter declines. Corporate earnings have generally improved in the euro area, following a protracted restructuring of corporate balance sheets over the last few years. The financing conditions faced by corporations in the euro area are very favourable at present. All of these factors should support a further recovery in investment".