26 April 2004, 10:59  France, Germany leaned on ECB over rates

The European Central Bank faced more pressure for lower interest rates from the euro zone's biggest countries, France and Germany, at Saturday's meeting of the world's top economic powers, an EU source said. The source said both German Finance Minister Hans Eichel and the new French finance minister, Nicolas Sarkozy, urged the ECB cut rates again to boost growth in the euro zone -- saying a benign inflation outlook gave it the scope. "They want an interest rate cut. They say inflation is low in the big countries. There is no reason to wait," the source said, referring to discussions at Saturday's meeting in Washington between finance ministers and central bankers from the Group of Seven rich nations. But ECB President Jean-Claude Trichet resisted the calls, arguing the prospects for growth are improving and it still has time to monitor the situation, the source said. Trichet told a news conference after the G7 meeting on Saturday the ECB was keeping all options open on rates and the central bank was eager for all new information after a series of conflicting signals. "We confirmed our gradual recovery. We are keeping all our options open. We have no bias," he said. But Trichet said he was not asked directly by any other member of the G7 to take any policy action.
"I explained our analysis and diagnosis and our monetary policy stance and I was not asked anything," he said, in reply to a question about whether the ECB was asked to cut rates. Both Eichel and Sarkozy think the central bank needs to do more as the euro zone has still to show the same strong recovery as the rest of the world, the source said, and inflation has slipped below the bank's 2 percent target. The source said Sarkozy, just a few weeks into his new job, was particularly forthright about the need for monetary easing in the 12-nation single currency bloc. Trichet said the ECB's best contribution to growth was to keep inflation expectations down so long-term interest rates remained low. Euro zone interest rates are currently at historic lows of 2.0 percent. The source also said U.S. Federal Reserve chairman presented a very upbeat assessment of the U.S. recovery though did not give any indication about whether the Fed was about to raise rates.|||

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