ECB cut cannot be ruled out if economy weakens

[HenryTo]

From the Managing Director of the IMF. The Bank Credit Analyst had previously mentioned that the IMF should cut by 50 basis points by the end of this year. Parity with the US$, anyone? It has also been true that monetary growth in the Euro region has been very decent (compared to American and Japanese monetary growth), but a lot of that money has been sucked from the economy by the great deal of socialist programs in that region:
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Saturday June 4, 8:41 PM

ECB cut cannot be ruled out if economy weakens-Rato
MADRID, June 4 (Reuters) - A European Central Bank (ECB) interest rate cut cannot be ruled out if the European economy weakens, IMF Managing Director Rodrigo Rato was quoted on Saturday as saying.
The ECB had the option of cutting rates, Rato said in an interview with Spanish financial daily Expansion. The interview was held during Rato's trip to Africa in May, before French and Dutch voters rejected the European Constitution, plunging Europe into a political crisis.

Asked if the IMF recommended that the ECB keep open the option of a rate cut, Rato said: "It's not that we've recommended them not to rule it out (the option of cutting rates) ... What we've said is that it cannot be ruled out in the event of greater weakness of the European economy."

The ECB on Thursday flatly rejected calls for a cut in interest rates to help reverse a European economic slowdown.

"It's true that European monetary conditions are loose, and in some countries very loose," Rato said.

"We've never thought monetary policy is responsible for European economic weakness. The ECB is right about that. The bank has been very efficient, in a very short time, in creating a credible monetary policy," he said.

"But monetary policy can play a role in the economic situation at the time or even in expectations. And we think you should not rule out any kind of measure in a situation in which weakness was much greater (than it is now)," he added.

Asked about uneven growth in the euro zone and the view of some economists that a one-size-fits-all monetary policy was not working, Rato said a homogeneous market like the United States could not be built overnight.

"I think you have to learn from the European experience. It's very new and doesn't have too many equivalents," he said. The United States also had divergences in growth and inflation, he said. But Europe's economic integration was incomplete and there were differences in financial, educational, technological and labour systems, he said.

Italian Welfare Minister Roberto Maroni, from the Euro-sceptical Northern League party, caused uproar on Friday by saying Italy should consider adopting its own currency again, fuelling talk of a possible break-up of the euro zone which EU leaders have dismissed as "absurd".

Rato said risks to world economic growth had increased since the end of 2004 but were stable in comparison with the IMF's April forecasts.

Detailing the risks, Rato said no alternative to U.S. growth had emerged to drive the world economy, oil prices remained about $50 a barrel and the U.S. current account deficit had not been reined in. "That (the U.S. deficit) is a risk that continues to weigh on the world economy and on growth," he said.

He stood by the IMF's April forecast that the world economy would grow by 4.3 percent this year.

The U.S. economy was growing at about potential, at around 3.5 to 3.6 percent, European growth was weak and the Asian economy continued to be very strong, he said.