Just over a week before the launch of the Euro, the president of the European Central Bank (ECB), Mr Wim Duisenberg, has ruled out a further cut in interest rates for the foreseeable future.
And he hinted that there could be a rise in rates to counteract a possible flight of investment from the euro area.
Speaking after a meeting of the governing council of the ECB in Frankfurt yesterday, Mr Duisen berg announced that the bank would create a narrow "corridor" for movements in short-term interest rates on the money markets.
"If you were to interpret it as a signal that there will be no further easing of interest rates in the foreseeable future that would be very welcome to us," he said.
Key central bank interest rates were cut to 3 per cent on December 3rd in each of the states participating in monetary union, with the exception of Italy.
The interest rates charged to Irish borrowers will fall as a result. Irish Permanent has already announced cuts which will benefit mortgage holders in the new year and First Active said yesterday that it would follow suit.
Against this background, the ECB president denied that the nature of the bands within which the money market rate will move represented a signal that interest rates were destined to rise.
"The only signal we do want to give is: markets, don't expect a change in interest rates in the immediate future," he said.
He predicted that the stability of the euro would attract investment into the new currency. But he admitted that interest rates could rise if the movement was in the other direction.
"What we hope for is a stable euro first and foremost, that it will be a currency based on price stability within the euro area," he said.
Mr Duisenberg said turbulence in the international economy was undermining industrial confidence in the euro area and predicted that economic activity could slow down in the short term.
But he insisted that conditions were right for a successful launch of Europe's new currency.
"The euro is being launched under optimal economic conditions where Europe itself is concerned. We would have been pleased if the international economic environment had been a little calmer over the past few months," he said.
The governing council of the ECB will hold one more meeting before the euro is launched - a teleconference on New Year's Eve to set the exchange rates at which each member currency will join the euro.
Mr Duisenberg expressed confidence that the launch would be a success and he gave Europe's politicians one final piece of advice.
"The advice is to stick to their policies as they have outlined them in the stability and growth pact and to continue to exude an image of continuity and stability. And I'd advise them to inspire that feeling of continuity and stability sooner rather than later," he said.
First Active plans to cut rates in new year; Euro zone set for slowdown: page 16
