European Central Bank (ECB) governing council member Mr Matti Vanhala said yesterday the euro-zone economic recovery may be slower than expected, but an ECB rate cut was unlikely to boost demand significantly.
"I'm sure that while a rate cut might not do great harm, it is actually not quite easy to make the case that it would affect the demand situation in any major way," Mr Vanhala, who is also governor of the Bank of Finland, said.
His remarks came amid growing pressure on the ECB from some euro-zone governments to cut rates to help spur growth amid the global economic slowdown. The bank kept its key rate steady at 3.25 per cent at its last meeting on October 10th.
"The financial markets tend to say that a rate cut would be beneficial to confidence but it is always very unclear in what sense it would be a signal and a signal about what," he said.
Mr Vanhala said average GDP growth this year in the euro zone was likely to be slower than the 0.9 per cent forecast by the Bank of Finland last month. "I think if we did the forecast today, we would adjust it down a bit. . . some way towards half a per cent."
He said it was important for Europe to regain confidence in the commitment to stability as laid out in the Growth and Stability Pact or risk higher long-term interest rates. He added that while growth of the monetary supply and wage trends were not currently feeding inflation, they could turn into inflation risks. - (Reuters)
