ECB rates cannot get any lower, says Garganas

European Central Bank council member Nicholas Garganas said yesterday the bank had done enough to spur growth and its interest rates may have already hit bottom if gradual eurozone recovery takes hold as expected. «The monetary policy is now very accommodating. Interest rates are at the lowest level since World War II and this really provides more than adequate room for expansion,» Garganas, who is also the head of Greece’s central bank, told Reuters in an interview. «I’m not saying, ‘That’s it, no more changes.’ What I am saying is there is little room for maneuver and as things stand at the moment the monetary policy has played its part; conditions are appropriate,» he said. Asked whether it was fair to say that unless the economic outlook deteriorated, rates may have already hit bottom, Garganas said, «Yes, that is my feeling, especially if the optimism about the prospects for the eurozone begins to materialize.» His comments chimed with those of Ernst Welteke, the Bundesbank chief and fellow ECB council member, who said earlier yesterday he saw no need for further ECB monetary policy action now. The ECB left interest rates unchanged on July 10, keeping its benchmark rates at a record low of 2 percent, following a 50-basis-point cut in June. Garganas said recovering stock markets and some sentiment indicators may signal improving confidence but these still had to be backed by a rise in production. «I expect that recovery will take hold by the end of the year, gaining momentum in 2004. It is too early to predict when potential growth will be achieved,» he said. It was now up to governments to boost confidence by showing their commitment to budget discipline and reforms. He also said central bankers were in favor of maintaining the Stability and Growth Pact in its present form despite renewed debate as to whether some of its provisions should be relaxed during economic slowdowns. Turning to the euro, he said despite evidence that its rise has somewhat dampened exports, the overall economic effect of a strong currency should be positive by reducing inflation, boosting disposable income and lowering costs of imports. And following a recent US dollar bounce, there was little risk that the euro rate could climb so far that it might become a concern, he said.

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