A rate cut by the European Central Bank would 'definitely be helpful' for the euro zone economy, the managing director of the International Monetary Fund, Horst Koehler, said today. He made his comments in an address to the lower house of German parliament, the Bundestag.
Koehler said that the external value of the single currency on the foreign exchange markets 'remains, from my point of view, weak'. The euro was changing hands at 0.8768 dollars this morning.
A large number of analysts blame the persistent weakness of the euro against the dollar on perceived unwillingness by the ECB to ease credit conditions in the euro area and boost flagging growth in the region.
The ECB is the only major central bank in the world not to have cut its key interest rates in response to the recent sharp deterioration in global economic conditions and has held its rates steady since October.
The US Federal Reserve has cut its key rates three times so far this year, lowering them by 1.5 percentage points in all. The IMF chief said that the Fed had shown the right degree of determination and 'in case of doubt had further room for manoeuvre'.
Until now, the ECB has insisted that the fallout from the US slowdown would remain limited for Europe. But many analysts disagree. And Koehler said this morning that the IMF expected to revise downwards its forecast for euro-area growth this year to 2.5%.
As late as mid-March, the fund had been forecasting European growth of 2.7 to 2.9%. Similarly, the IMF would scale back its forecast for global growth this year to 'a 3%' from 3.4% previously, Koehler added.
