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ECB maintains key rate
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December 2, 1999: 10:54 a.m. ET
Refinancing rate held steady at 3%; central bank chief defends euro
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LONDON (CNNfn) - The European Central Bank left interest rates unchanged after its bi-weekly meeting Thursday as its president mounted one of his staunchest defenses of the beleaguered euro.
ECB president Wim Duisenberg said the single currency "has a strong potential to appreciate" provided prices remain stable across the 11-nation euro zone.
Duisenberg's remarks came shortly after the ECB’s 17-member governing council left its key financing rate unchanged at 3 percent, as expected.
But the bank’s decision to leave its growth target for M3 money supply at 4.5 percent took most economists by surprise. While M3 has averaged about 5.5 percent over the past year, raising the level would have suggested the bank was loosening its stance on inflation, which could have put further pressure on the euro.
The announcement prompted a slight rise in the euro before it settled back to about $1.0040. Earlier in the day it hit $1.0023, the closest it has come to one-to-one parity with the dollar since its launch at $1.18 in January.
In recent days, the euro's flirtation with parity has prompted officials and economists to speak out in defense of what they see as an essentially viable currency that is experiencing a few birth pangs.
Duisenberg said Thursday the euro had the potential to appreciate provided that the ECB maintains a tough anti-inflation stance in its monetary policy.
"We do believe that if we can get that message across...that that in itself will show that the euro has a strong potential to appreciate," he said
Duisenberg added that, in his view, the exchange movements between the euro and the dollar were "not inexplicable,” suggesting that as the growth gap between the United States and Europe narrows, the euro will have more leeway to rise.
The European economy is forecast to grow around 3 percent in 2000 and 2001.
"Whatever I say, whatever I do, the euro continues its movements so perhaps I am best advised not to say anything," Duisenberg said.
Noting one upside to currency softness, Duisenberg added at another point that a weak euro tends to help European exporters to compete by making their products cheaper abroad.
The ECB also decided to leave its overnight emergency lending rate untouched at 4 percent and its overnight deposit rate unchanged at 2 percent.
The ECB has only raised rates once in its year-long history -- on Nov. 4, when it hiked all three of its principal interest rates by one half percentage point in a bid to stem nascent inflationary pressures. The hike came against a backdrop of strengthening in the euro-zone economy and growth in money supply.
The earlier hike effectively reversed an April decision to cut rates by a half percentage point. 
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European Central Bank
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