FRANKFURT, April 10 - The European Central Bank said on Thursday it was not yet possible to judge the fallout of the Iraqi war on the economy, and, in its April monthly bulletin gave no new hints on where interest rates are headed. The bulletin, prepared before the collapse of Saddam Hussein's regime, repeated the ECB's promise made last week to review the implications of the war as soon as the picture clarifies. "It was not possible at that juncture (April 3) to assess what effect the military operations would have on the global economy, and on economic developments and the medium-term outlook for price stability in the euro area," the bulletin said.
"As exceptional circumstances are currently complicating the assessment of economic trends, the Governing Council will continue to monitor events carefully and evaluate them in the light of its mandate," it added. The bulletin's editorial closely followed ECB President Wim Duisenberg's statement at the April 3 news conference explaining the central bank's decision that day to keep interest rates unchanged at 2.50 percent. At that time, he said the ECB has no monetary bias. Data for the report were collected up until April 2, so the economic assessment does not take into account the latest developments in Iraq. The ECB said its current monetary policy stance was consistent with achieving price stability and favoured economic growth at a time when other factors were restraining activity. Financial markets were little changed on the ECB report, since it provided no fresh insight to ECB monetary policy. Still, many analysts see the central bank cutting borrowing costs again by the end of June, to kick-start growth.
The June Euribor futures contract, a measure of euro zone rate expectations, was last at 97.660, indicating short-term interest rates at 2.34 percent within two months -- or a 75 percent chance of a 0.25 percent rate cut. The ECB is coming under mounting pressure to ease. The International Monetary Fund said on Wednesday the ECB should cut rates, especially if the recovery remains weak or the euro currency rises again.
MODEST GROWTH IN 2003
The ECB said in the report its main scenario remains one of a moderate recovery as uncertainty fades, starting in the second half of this year. Overall growth in 2003 is likely to be only modest. At last week's news conference, Duisenberg said he did not expect growth this year to exceed one percent. The European Commission has slashed its growth forecast for the 12-member economic bloc to 1.0 percent this year from a previous forecast of 1.8 percent, because of sluggish growth, swelling budget deficits in major economies and rising unemployment. The IMF halved its 2003 growth forecast for the euro zone to 1.1 percent from 2.3 percent expected six months ago and said the ECB should tolerate higher inflation. In its monthly bulletin, the ECB said that if the recent decline in oil prices persists, inflation will probably drop below two percent in the course of 2003 and stay there. The euro's recent rise will also dampen price pressure, it said . The ECB's goal is to keep consumer inflation below two percent over the medium term. Euro zone inflation was at 2.4 percent in March, preliminary data show.//