7 March 2001, 12:42 PRESS: BBK'S KUEHBACHER: ECB MAY CUT IF HICP FALLS BELOW 2.2%
FRANKFURT (MktNews) - The European Central Bank should keep its
official interest rates unchanged for now but could decide to cut rates
when the eurozone harmonised inflation rate (HICP) falls to 2.2%, which
could happen in June or July, Bundesbank council member Klaus-Dieter
Kuehbacher said in an interview with the German magazine Focus Money.
"The ECB will do nothing as long as (HICP is above this level),"
Kuehbacher told the magazine, according to a summary of the interview
made available in advance of publication. The HICP rate stood at 2.4% in
January but is expected to fall to 2.2% and below in coming months.
A possible rate cut could be coupled with concerns about the
strength of the European economy in 2002, Kuehbacher added. "In such a
case, the cut must be 50 basis points (for Europe) to be a locomotive
(for the world economy)," Kuehbacher said.
But for the moment, the ECB should keep rates unchanged, Kuehbacher
advised. "The ECB should not cut interest rates so soon."
"It is important for the ECB as a young institution to build up
confidence," he said. "An element of such a process is a policy of a
steady hand (on interest rates)," he continued.
"ECB policy did not follow this principle at every stage last
year," he argued, criticising the series of small rate hikes that the
ECB undertook through 2000.
Kuehbacher has no direct influence on the ECB monetary policy but
as a member of the Bundesbank council advises Bundesbank President Ernst
Welteke, who sits on the ECB Governing Council.
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