From the Wall Street Journal (page A12 in the print version):
The European Central Bank said growth prospects in Europe have only worsened since the bank downgraded its forecast for the year in March, adding to global gloom just a day after the Federal Reserve pointed to some slowing of the U.S. economy.
But the ECB continues to warn that it may boost interest rates for the 12 nations that use the euro to fend off inflation, raising eyebrows among other international institutions and politicians.
The bank left its key short-term rate on hold yesterday at a historically low 2% for a 23rd consecutive month. The bank's president, Jean-Claude Trichet, said that recent economic reports "are, on balance, on the downside."
That is a significant shift from a month ago, when the bank judged economic reports to be "mixed." Just two months ago, the bank cut its growth forecast for this year to around 1.6% from 1.9%. The bank's assessment suggests another downward revision when new forecasts are published next month.
Not everyone is thrilled with the ECB position:
International Monetary Fund Managing Director Rodrigo Rato criticized earlier this week the ECB's stance as too hard-line. "There is no sign of inflationary pressure in Europe," Mr. Rato said. "We think it is premature to rule out interest-rate cuts in Europe".
But the Bank is hanging tough:
But Mr. Trichet continued to suggest the bank's next move would be upward. "Everybody knows that if we were called to increase rates, we would do that." But he acknowledged that the ECB is in a "wait and see" mode and declared that the current rate is "appropriate" -- a word the bank has used to signal no change is in the offing.
Indeed, the expectations seems to be "no change" for a considerable period of time.
A number of economists have delayed their expectations for a rate increase, now forecasting a move next year instead of this year. Julian Callow, chief European economist at Barclays Capital in London, said that barring any surprises, he doesn't expect a rate rise until next year.