The European Central Bank (ECB) refused yesterday to follow the US Federal Reserve's lead in cutting interest rates. But the ECB president, Mr Wim Duisenberg, made clear in Frankfurt that a rate cut for the euro zone was on the way.

After a meeting of the ECB's Governing Council, Mr Duisenberg took the unprecedented step of telling reporters that the central bankers had considered a rate cut.

"The Governing Council has discussed extensively the arguments for and against a cut in the key ECB interest rates. The view has prevailed to keep interest rates unchanged. However, the Governing Council will monitor closely the downside risks to economic growth in the euro area," he said.

The ECB's unprecedented candour about its intention to cut rates follows the Federal Reserve's decision on Wednesday to cut US interest rates by half a percentage point to 1.25 per cent, their lowest level for more than 40 years. Mr Duisenberg said he had expected the US rate cut but admitted that its magnitude surprised him.

ECB sources suggested yesterday that the Governing Council may have interpreted the Federal Reserve's move as a sign that the US economy was about to deteriorate further. There have been no significant developments in the euro-zone economy during the past month to account for Mr Duisenberg's sharp change of tone. The ECB president acknowledged that the economic circumstances affecting the US also have an impact on the euro zone. "The uncertainty is the same as the uncertainty we feel," he said.

ECB sources played down speculation that yesterday's statement represented a commitment to cut interest rates next month. But any further sign of a slowdown in the US would almost certainly prompt a rate cut in Europe on December 5th, probably by a quarter percentage point.

Mr Duisenberg restated the ECB's faith in the Stability and Growth Pact, despite recent remarks by European politicians, including European Commission President Mr Romano Prodi's description of the pact as "stupid".

"There is a strong consensus within the Governing Council that the principle of budgetary discipline enshrined in the treaty and the Stability and Growth Pact are indispensable for Economic and Monetary Union and that the Stability and Growth Pact has been successful in promoting sound public finances and fiscal convergence, as well as in supporting the return to price stability. Moreover, the pact is in the interest of the member-states," he said.

Mr Duisenberg added that he believed EU politicians had ceased their debate about the pact and he welcomed their renewed reticence on the subject. "The utterances and counselling about the Stability and Growth Pact is very much a thing of the past - the very recent past. But I was very pleased when I attended the Eurogroup [of euro-zone finance ministers] to observe the determination of the ministers to uphold the Stability and Growth Pact and to stop talking about it," he said.

Mr Duisenberg said the ECB was close to formulating a proposal to reform its Governing Council after EU enlargement. He said the reform would retain the principle that each national representative had a vote on monetary policy but that it would take account of other factors to ensure that the euro-zone's biggest economies did not lose influence.