LONDON (AFX) - The European Central Bank looked less likely than ever to cut rates in the immediate future after chief economist Otmar Issing reaffirmed price stability as its priority and declared there was no cause for gloom about the euro zone economy.
Issing told a Market News seminar that a medium term-oriented monetary policy has "little room for fine-tuning the economy and controlling the economic cycle".
The ECB has neither the instruments nor the intention to do so, he said in what will be taken as a reaffirmation of ECB signals that it does not intend to cut rates at next Thursday's meeting of its governing council.
"The mandate of the ECB implies that the monetary policy decisions of the ECB aim at maintaining price stability in the medium term based on the assessment of the risks to price stability," Issing said.
"By following this policy, the ECB will continue to provide its best contribution to economic growth and employment," he said. He said the main upward risk to price stability in the medium term related to the risk of second round effects in wages due to the present levels of inflation rates.
While the present external background might, though lower demand for euro exports, induce a stronger decline in the euro area growth rate than was expected some months ago, "there is no reason for pessimism about the euro area economy".
He predicted economic growth in the euro zone will remain solid and will "move in line or above its potential trend growth in 2001, an outlook which can hardly be considered as worrying".
The impact on the euro zone from the global downturn will be "sizeable but limited", with more of a psychological than a real effect, he said in response to questioning.
Issing rejected suggestions from one questioner that the ECB had triggered market volatility by giving mixed signals on rates. "I don't share your assessments," he said. "At a time ruled by high uncertainty, it would be strange if the ECB made up of so many central banks would speak in the same words. Our communications did not present the picture you indicate."
Asked what interest rate assumptions the OECD and the IMF have incorporated into its forecasts for the euro zone, he said, "What they have implied are minor reductions in our interest rates."
He said the impact of interest rate decisions would not affect the euro zone growth picture in 2001 "in a very relevant way".