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Friday, 11 May, 2001, 15:33 GMT 16:33 UK
ECB rate cut criticism
Wim Duisenberg, the president of the European Central Bank (ECB)
ECB President Wim Duisenberg said Thursday the quarter-point cut to 4.75 percent should ensure economic growth.

By the BBC's business reporter, Jonty Bloom

The surprise decision by the European Central Bank (ECB) to cut interest rates on Thursday has been welcomed by many as good news for Europe's and the world's economy.

The ECB cut its key rate for the eurozone from 4.75% to 4.5%, holding out the chance for cheaper borrowing for economies such as Germany.

Figures from Germany had shown a worrying slowdown in industrial production, highlighting the fact that Europe is not immune to what is happening in the US.

The trouble for the ECB is that we have all known that for months, the argument is over how much influence America will have on Europe and whether it is the ECB's job to cut interest rates in order to lessen the impact.

A trader reacts at the German stock market in Frankfurt
German stock market index DAX shortly after the ECB unexpectedly trimmed its main interest rate

Up until Thursday the ECB has been making itself unpopular with European businesses by sticking to its guns and concentrating on keeping inflation under control.

It received a lot of criticism for that but at least it was building a reputation for steadfastness.

It has caught a lot of flak in the past for not explaining its policy and not having a consistent line on interest rates and the value of the euro.

However unpopular, its decision not to cut rates was at least steady and understandable.

Now the ECB has cut rates but the claim by Wim Duisenberg that new money supply figures mean that inflation is on the way down and therefore the cut was justified have failed to convince.

Not least because new figures on Friday show that inflation is on the way up. German inflation is at a seven year high.

Now the ECB is paid to look a lot further ahead than 24 hours but it all begins to look a bit shambolic. The ECB made a lot of noise in the last few weeks about standing its ground and it has now moved.

Once again the ECB has upset the markets by sending confusing signals, failed to impress with its arguments and explanation and undone a lot of good work.

Whatever the economics, that could mean this cut in interest rates has done more harm than good.

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11 May 01 | Business
Euro weaker after rate cut
10 May 01 | Business
Eurozone rate cut surprise
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