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ECB leaves rates alone
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November 18, 1999: 10:50 a.m. ET
Key rate left at 3.0%; no change expected until 2000, maybe 2001
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LONDON (CNNfn) - The European Central Bank declined to follow the Federal Reserve's lead Thursday, and kept its interest rates unchanged.
The ECB left its key short-term borrowing level at 3.0 percent, exactly as economists had predicted.
The ECB's main focus now is likely to be on monetary growth figures, and the wage response to recent inflation data. A pickup in the monetary growth data was behind the bank's decision to raise its key rate from 2.5 percent earlier this month.
A closely watched indicator of price pressures is the upcoming wage bargaining round in the German metalworking industry. The current deal runs out in February, and in the run up to new negotiations both employers and unions are likely to be stating their case publicly.
"It's very important to see whether the employers confront the unions this time," commented Robert Prior, European economist with HSBC Securities, "or whether they pretty much cave in, like last time."
Those concerns apart, Prior predicts little action in European interest rates until 2001, when the next move could be down again. He concedes there could be a small upward movement when headline inflation data peaks early next year, mainly due to the oil price rise, but points out the lack of pressure on underlying inflation.
"There's no need for a prolonged period of tightening," according to Prior, who points to question marks over the pace of the German economic recovery and likely sluggish economic growth across Europe from the middle of 2000.
Concerns over Germany were echoed by Stephen Lewis, chief economist at Monument Derivatives. In a recent report he wrote, "It is worth noting that, in its revised forecasts for GDP growth, the OECD saw fit to raise its 1999 forecasts for most (euro-zone) member-countries, as compared with its June projections, but lowered those for Germany and Italy." 
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European Central Bank
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