The European Central Bank should not raise interest rates until 2006 when the euro zone economy is on a sounder footing, Germany's six leading economic think tanks said today.
"It would be appropriate for the ECB to raise interest rates during the forecasting period (2005-2006) to counter medium term risks to inflation, shown by new studies into the relationship between money growth and inflation," the institutes wrote.
Semi-annual reivew of the health of the German economy
"However, the institutes believe a rate hike is only warranted next year once the euro zone economy has strengthened," they said in their semi-annual review of the health of the German economy.
The institutes forecast the euro zone economy would grow 1.4 per cent this year, down from a 2.0 per cent prediction made last October, and 2.0 per cent in 2006.
Their forecast assumed the ECB would raise interest rates 50 basis points to 2.5 per cent in the course of 2006.
They halved their 2005 German growth forecast to 0.7 per cent from 1.5 per cent, but said there was little evidence to suggest Germany had suffered more than other countries from ECB monetary policy since the euro's launch in 1999.
Although real interest rates for German consumers have been higher than in other euro zone countries, those for industry - deflated using producer prices - had sometimes been lower.
"All in all one should not expect the ECB's single monetary policy to lead to a long-term divergence in economic developments in the countries of the euro zone," they wrote.