The European Central Bank justified its decision today to cut its key rates by a quarter of a percentage point on the basis of the dimmer outlook for economic growth in the euro zone.
Speaking after the ECB cut its central "refi" refinancing rate to 2.5 per cent from 2.75 per cent, ECB President Mr Wim Duisenberg said the "subdued pace of economic growth and the appreciation of the exchange rate of the euro" had opened up the room for a rate cut.
This was because these two factors would help keep a lid on inflation, he said. Indeed, the outlook for economic growth in the euro area in 2003 "has weakened compared with previous expectations, owing especially to the geopolitical tensions and the associated rise in oil prices," Mr Duisenberg told a news conference.
"Accordingly, only a very modest rate of economic growth should now be expected this year," he said.
Mr Duisenberg said the ECB's growth forecasts for the euro area had been revised downwards "not insignificantly" from the previous projection of a growth range of 1.1-2.1 per cent.
Pressed to provide a new figure, the ECB chief said euro-area growth could come out at around 1 per cent this year.
But he insisted that the ECB believed growth would pick up towards the end of the year. "The most likely scenario is that economic growth will gradually recover once the factors contributing to the high economic uncertainty have diminished," Mr Duisenberg said.
AFP