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European Central Bank Urged to Lower Interest Rates

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Bloomberg News

The European Central Bank should lower interest rates to help boost economic growth in the 12 nations that share the euro as a common currency, two Group of 7 finance ministers said. “Given the downside risks to the global economy, an easing in rates [by the ECB] would prove quite helpful in the near term,” Canadian Finance Minister Paul Martin said in the text of a speech to the International Monetary and Financial Committee. “Waiting too long to ease could prove costly.” Last week, the ECB left its benchmark borrowing rate unchanged at 4.75%. The ECB is the only major central bank to keep rates unchanged in the face of a global economic slowdown, and has been criticized for doing so. In contrast, the Federal Reserve has lowered rates four times since the first of the year, and the Bank of Japan last month effectively lowered its benchmark lending rate to zero. At the G-7 meeting over the weekend, ECB chief Wim Duisenberg explained that the ECB’s mandate is to keep price stability. The Bank aims to keep prices below 2%, a goal it has failed to reach for 10 straight months. Lowering interest would help growth by making a mortgage or auto loan cheaper for the more than 300 million consumers in the euro zone, and it would make it easier for companies to invest and hire. The ECB, though, fears that reducing rates now will boost inflation further.

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