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European Central Bank Keeps Rates

February 18, 1999

FRANKFURT, Germany (AP) _ The European Central Bank kept its key interest rate unchanged at 3 percent during a regular meeting Thursday attended by Germany Finance Minister Oskar Lafontaine, a fierce advocate of lowering rates.

Lafontaine has steadily argued since taking office last fall that Europe’s central bankers should lower rates to help boost growth and ease stubborn unemployment. In the 11 nations that adopted the single euro currency, unemployment stands at 10.8 percent.

His comments have mostly been met with strong statements by central bankers defending the bank’s independence from political influence.

For the first time Thursday, Lafontaine made his appeal during the board’s regular biweekly meeting.

Lafontaine, who was permitted to speak, but not vote, left the meeting with the governing council still in session. He emphasized that he was leaving before any decisions were made.

The ECB had been widely expected to leave rates unchanged, given the weaker euro. The common currency is now worth $1.124 after being launched Jan. 1 at $1.1776.

Earlier Thursday in Brussels, Lafontaine said there were convincing economic reasons for cutting rates, referring to a recent analysis made by European retail banks that said a rate cut wouldn’t push up inflation.

Interest rates in the euro bloc were set at a uniform 3 percent before the single euro currency was launched Jan. 1.

Chancellor Gerhard Schroeder’s economic policy adviser, Klaus Gretschmann, said Wednesday that he expected the ECB to cut its rate by up to 0.5 percentage points this year.

However, he said he doesn’t expect the ECB to lower rates until annual wage negotiations are over.

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