I agree with the IMF on this one

money.jpgIn a prior entry I questioned whether the sustained outlook for the Eurozone economy was warranted and now the IMF also asks the same question.

'Eurozone economic conditions are not yet strong enough to justify substantial interest rate rises, the European Central Bank has been warned just hours before it decides how much further to raise borrowing costs.

A limited rise in borrowing costs “appears warranted”, the International Monetary Fund concluded in its latest report on the 12-country eurozone. “However, the conditions for continued and thus more substantial tightening do not seem to be in place.”

The IMF report was presented on Tuesday night to a eurozone finance ministers’ meeting in Luxembourg, and came as the ECB prepared for its monthly interest rate setting meeting tomorrow.

The ECB, which raised rates by a quarter percentage point in December and March, is expected to raise its main rate by a quarter point to 2.75 per cent, but has kept open the option of a larger-than-usual half point rise.

Buoyant economic indicators in the past few weeks, especially strong credit growth, might persuade some ECB governing council members to push for a larger rise in borrowing costs.

However the IMF said headline eurozone inflation was expected to fall in 2008, back below the 2 per cent level where it would be consistent with the ECB’s definition of price stability.

A policy of continued monetary policy tightening would require an outbreak of domestic inflationary pressures or “a quickening in the fundamentals of the recovery – notably, under present circumstances, in employment growth”, the IMF concluded. “Growing uncertainty in financial markets and an appreciating euro also argue for caution in raising rates.”'