March 23, 2003	Sunday	Muharram 19, 1424

FRANKFURT, March 22: The European Central Bank’s chief economist indicated on Saturday it had no plans for an immediate rate cut as a result of the Iraq war, but that it was ready to step in if there was a sudden lack of liquidity.

People seem to have the impression that the ECB lowers rates as soon as the war starts, Otmar Issing told the German newspaper Welt am Sonntag in remarks due to be published on Sunday.

But I can only warn against such a simple way of thinking, he said.

The ECB on Thursday released a statement saying it stood ready to act and financial markets could depend on it to provide funds if needed in light of the geopolitical situation.

Analysts said this did not signal an immediate rate cut in the offing.

If it is necessary the ECB is committed to act but at the same time it has to counter any excessive and wrong expectations, he said.

There would be a big psychological damage if the actions of ECB would be judged as useless or even affecting the wrong target, he said.

Issing said the task of the bank was to create confidence during the Iraq war, and it would react immediately in the event of a sudden lack of liquidity.

Issing said Europe was not on the brink of a recession but in a phase of very weak growth.

We still expect growth in the second half of 2003 to speed up. The condition for that is the war is relatively short and comes to a good end, he said.

The European Central Bank (ECB) said on Thursday it was ready to react in case of any disturbances on the financial markets following the launch of the first military attacks by the United States against Iraq.

We will, as always, observe the development of the financial markets, a central bank spokesman told AFP.

And we stand ready to react in case of any disturbances, the spokesman said.

After the September 11 attacks in the US, we showed that we were in a position to react to any disturbances, even on the same day, he added.

In the wake of the deadly attacks on the World Trade Center in New York, the ECB injected liquidity into the markets to help stabilise the global financial system.

And in the weeks after the attacks, the ECB cut its key interest rates in a concerted move with the world’s other major central banks.

Already in its latest monthly report published last week, the guardian of the euro said it was ready to act on interest rates depending on the economic impact of a war in Iraq, after already paring back euro-zone borrowing costs by a quarter of a percentage point to 2.50 per cent on March 6.

That move was criticised by financial market players as being too timid.

Meanwhile in Japan, the Bank of Japan pumped an extra $8.3 billion into financial markets Thursday after war broke out in Iraq and as new BoJ governor Toshihiko Fukui started work.

Fukui vowed to keep markets stable, while Economic and Financial Affairs Minister Heizo Takenaka said the government would work with the central bank to monitor the impact on Japanese markets of the US-led military campaign in the Gulf.

The dollar rose briefly against the yen after the first explosions rocked Baghdad, but fell back as investors worried about the increased risk of terrorist attacks, dealers said. —Reuters/AFP