Vienna, Feb. 19 (Bloomberg) -- European Central Bank council member Klaus Liebscher said an interest rate cut isn't necessary to revive economic growth, differing from other policy makers who have signaled support for lower borrowing costs. ``Neither the current value of the euro nor our monetary policy stance are hindering economic growth,'' Liebscher, who is also the governor of Austria's central bank, said in an interview. ``I'm cautiously optimistic'' about the economy. Rate-setters from President Wim Duisenberg to Ireland's John Hurley said the growth outlook has worsened as the Iraq crisis keeps companies and consumers from spending. The ECB's 18-member governing council next meets to set rates on March 6. The $7 trillion economy, second in size only to the U.S., may shrink in the first quarter after the slowest growth in almost a decade last year, the European Union estimates. The ECB still sees growth returning to a rate of 2 to 2.5 percent, though Duisenberg said this week he could no longer say when.
``Unlike some other officials, Liebscher doesn't give any indication that he believes a cut is desirable,'' said Julian Callow, an economist at Credit Suisse First Boston Ltd. in London, who used to work at the Bank of England. ``They don't yet feel they have enough evidence to lower rates in March.'' Investors expect cheaper money by the end of the first half, interest rate futures trading shows. The rate on a three-month euro deposit maturing in June fell 1 basis point to 2.35 percent at 1:45 p.m. in Frankfurt, compared with a money market rate of 2.69 percent. A basis point is 0.01 percentage point.
`Steady Hand'
Growth forecasts may have to be cut by ``a 10th of a percentage point'' or a little more, Liebscher said. Still, ``I wouldn't rule out'' that growth in the euro region will return to what the ECB calls the region's potential growth rate this year. The central bank on Feb. 6 left interest rates unchanged at a three-year low of 2.75 percent. It last pared rates by half a point on Dec. 5, the first reduction in more than a year. The Bank of England on Feb. 6 cut its benchmark rate to the lowest level since 1955. U.S. rates are at the lowest level in 41 years. ``I'm not a proponent of an activist policy,'' Liebscher said, sitting in a meeting room on the fifth floor of the Austrian National Bank. Markets should be able to ``rely on the steady hand of monetary policy.'' The ECB has room to cut interest rates in case there is a war in Iraq, ECB council member Guy Quaden told a news conference this week. Still, ``we must not waste our ammunition.''
Euro's Gain
The euro's 22 percent rise against the U.S. dollar in the past year is ``far from'' hurting Europe's long-term growth, Liebscher said in the interview. ``European exporters are dealing quite well with that situation.'' Companies from Siemens AG, Germany's largest electronics and engineering company, to Air Liquide SA, the world's largest maker of industrial gases, disagree. Siemens board member Volker Jung said last month the euro has already hurt orders. Air Liquide said fourth-quarter sales fell because of the currency's gain. A further rapid gain would be ``absolutely undesirable,'' Quaden, governor of the Belgian central bank, said. Ernst Welteke, president of Germany's Bundesbank, has also said the economy may suffer if the euro's rise continues. Europe's single currency rose 0.24 cents to $1.0714 at 1:15 p.m. in Frankfurt.
Inflation Outlook
Liebscher, who joined the Austrian central bank board in 1995 after 27 years at Raiffeisen Zentralbank Oesterreich AG, a cooperative agricultural bank, said that while the stronger euro helps keep prices in check, the outlook for inflation hasn't changed from December. ``The inflation outlook is the same as it was back then,'' the 63-year old said. ``We are still convinced it's possible that inflation will fall under 2 percent, but, obviously, one has to take into consideration the development of oil prices.'' The ECB's main mandate is to keep prices stable, a goal it has defined as an annual inflation rate of less than 2 percent. The inflation rate is currently at 2.1 percent. M3 money supply growth, the ECB's gauge of future inflation, slowed to an annual rate of 6.8 percent in December from 7.1 percent in November. The bank aims to keep annual M3 growth, a measure of cash and money on deposit, at about 4.5 percent. It has missed that goal more often than not. The strong money supply growth should not lead to ``a lasting danger'' for price stability, Liebscher said, adding he saw ``no need at all'' to change the bank's focus on money supply or its inflation limit when it reviews its monetary policy strategy this year.
Stick to Budget Rules
Liebscher also warned ``against already using a possible war in Iraq to consider relaxing or reinterpreting'' European budget rules, which limit government's deficits to 3 percent of gross domestic product. The European Commission has said budget rules for the region could be relaxed in case of war, allowing governments to boost flagging economies by increasing spending or cutting taxes. Finance Minister Hans Eichel said Tuesday the country's deficit may breach the EU limit for a second year should the economy grow less than the 1 percent his government had forecast. The budget rules are ``flexible enough to react to different situations,'' Liebscher said. Parts of the interview will be broadcast on Bloomberg TV's German channel at 2:35 p.m. and 7:35 p.m. Frankfurt time. //www.quote.bloomberg.com