A leading International Monetary Fund official has criticised the European Central Bank for its decision to leave interest rates unchanged. The bank announced the decision yesterday, despite four recent cuts in American rates. Michael Mussa, IMF Chief Economist, was speaking at the IMF's annual meeting with the world's Finance Ministers and Central Bank Governors in Washington.
"In a period when general economic slowdown is the main problem and when inflation is not likely to be a continuing threat, the euro area ... needs to become part of the solution rather than part of the problem," said Mr Mussa. He added: "I would probably start with (a) 25" basis-point cut in short-term interest rates. Politicians, think tanks, business and trade unions had all urged a cut, following signs of deteriorating business confidence in Europe in a spill over from the US economic slowdown.
Volker Nitsch, an economist at Bankgesellschaft Berlin, said that the ECB was likely to wait for signs of a slow-down in inflation and the economy before cutting rates. "They have to send clear signs they really intend to lower before we can predict accurately the date for a cut. The situation is very clear ... they do not intend to cut rates in the near future," he added. The bank has made it clear in recent weeks that it is in no hurry to cut. It argues that the euro zone's economy is protected by the size of its domestic market, that growth remains robust and that inflation pressures have not been banished.
