Risks to eurozone inflation have decreased due to weak growth but money supply continues to expand strongly, European Central Bank Chief Economist Otmar Issing said in an interview published on Saturday. Asked if the central bank was considering a cut in interest rates after reducing the mid-range of its eurozone growth forecast to 1.4 percent from 1.6 percent, Issing told Spiegel magazine: "It's true that risks to price stability have lessened because of weak economic growth.
"At the same time we are still seeing rising money supply and robust credit growth."
The ECB's key interest rate has been on hold at 2.00 percent since June 2003. Officials for months had ruled out a cut in rates, but in recent days have said the bank's policy stance is "neutral", implying rates could still go either up or down.
Politicians in Germany and Italy have demonstrated growing frustration with the ECB's wait and see stance, with some in Italy even raising the spectre of a return to the lira.
Germany's Economy Minister Wolfgang Clement reiterated on Saturday calls for the ECB to cut rates to boost growth.
"Macroeconomic conditions threaten the success of social reforms and not the other way around," Clement wrote in an opinion piece for Sueddeutsche Zeitung newspaper. "The room for a growth-stimulating monetary policy should be used," he added.
Issing declined to say if markets were right to bet on a rate cut but said the ECB had a strong interest in its policy decisions being anticipated. "In the past financial markets have practically always correctly evaluated the ECB's monetary policy decisions," he added.
Issing also said he did not expect "lasting damage" to the euro's exchange rate from rejection of the EU's constitution by French and Dutch voters but the single currency was not immune to "political votes of no confidence."
"I don't expect any lasting damage, that is to say a sharp fall against the dollar," Issing told Spiegel magazine.
"The currency markets quickly stabilised after both referendums. At the moment the euro-dollar exchange rate is at a level I would not describe as weak," he added.
He dismissed Italian ministers' threats to leave the eurozone as absurd, saying the economic cost from any such decision to Italy's economy would be huge.
He said such comments merely served to undermine consumer trust in the currency and "distract from one's own mistakes."