FRANKFURT (AFX) - European Central Bank president Wim Duisenberg said today's surprise ECB interest rate cut was the result of "somewhat lower inflationary pressure".
"This reduction is to be seen as an adjustment of the level of interest rates to somewhat lower inflationary pressure over the medium term," Duisenberg told a news conference.
The ECB cut leading rates by 0.25 percentage points, taking the minimum bid rate on its main refinancing operations to 4.50 pct. Duisenberg said this is the appropriate level for interest rates to guarantee future price stability.
"On the basis of the information available, this is the appropriate level of interest rates to ensure that the euro area economy will be able to maintain price stability and thereby contribute to sound economic growth over the coming years," he said.
Duisenberg said monetary developments no longer pose a risk to price stability, because M3 growth figures have been distorted upwards by the inclusion of non-residents holdings of marketable paper. This distortion has inflated M3 growth rates by around 0.5 percentage points, he said.
He said there has also been some slowdown in credit growth in recent months.
Duisenberg said GDP growth is expected to moderate as a result of a deterioration in the external environment, and this will help contain upward pressure on consumer prices from the demand side.
Forecasts suggest that actual economic growth will nevertheless be broadly in line with trend potential growth, supported by domestic demand, he said. The ECB defines trend growth as 2.0-2.5 pct.
Duisenberg said wage moderation has so far been maintained for the euro area as a whole and this has been a very positive factor. He said extraordinary factors pushing up inflation should gradually diminish over the course of this year, and said this implies "an improved outlook for inflation to fall below 2 pct in 2002".
He said the inflation outlook is now positive but the ECB nevertheless needs to remain vigilant.