The European Central Bank (ECB) has said that it stands ready to take action on interest rates in response to inflation developments "in any direction". "Depending on further developments which may change the medium-term outlook for price stability in any direction, the governing council stands ready to act decisively and in a timely manner," the ECB said in its March monthly bulletin, published today. ECB president Wim Duisenberg made a similar comment after the bank lowered rates by 25 basis points to 3.50pc last week, but was understood to be referring only to further rate cuts in response to economic uncertainty, not rate hikes to deal with inflation.
However, the ECB believes that the outlook for price stability over the medium term "has improved in recent months" as the subdued pace of economic growth offsets the impact of higher oil prices. In its bulletin, the bank also said that the risks to the global economy remain to the downside and are "substantial". "As regards the first months of 2003, a number of leading indicators and survey data signal continued subdued economic activity," it added. //www.fxcentre.com