The European Central Bank today rejected criticism of its refusal to cut rates ahead of a meeting of the Group of Seven rich nations.
The ECB said inflation was unacceptably high and that ill-judged cuts would harm growth.
A day after the International Monetary Fund challenged Europe to become part of the solution rather than contributing to the problem of a global economic downturn, ECB chief economist Mr Otmar Issing and Bundesbank President Mr Ernst Welteke said calls for ECB rate cuts were inappropriate.
"We are confronted with headline inflation beyond what is acceptable," Mr Issing told a conference in London before a weekend G7 meeting at which the ECB will stand isolated as the only major central bank not to have cut rates this year.
Speaking on the day that Germany cut its 2001 GDP gorwth forecast to 2 per cent from 2.75 per cent, he said tackling inflation, which is currently running more than half a percentage point above the ECB's threshold, would be the best way of promoting the interests of the global economy.
Mr Welteke said the central bank did not have a target for its exchange rate but added that the currency, which is currently about 23 per cent below its launch levels, was still undervalued.