Solbes Sees Lower ECB Interest Rates as Growth Slows

By Ben Sills

Sept. 23 (Bloomberg) -- Spanish Finance Minister Pedro Solbes said the European Central Bank will probably lower interest rates in the coming months as economic growth slows, provided inflation can be reined in.

``Probably in the next few months we'll see more favorable interest rates,'' Solbes said in an interview on Spain's Antena 3 television station. ``In a situation of less economic activity, if we are able to lower inflation, it's logical that ECB rates will fall.''

The ECB has so far shown no inclination to cut interest rates even after the euro-region economy contracted for the first time since the single currency was introduced. The central bank is concerned that steeper energy costs will prompt companies to raise prices and workers to demand higher wages to compensate for the increase in the cost of living.

``It would be healthy if the European Central Bank adjusted the price of money,'' Labor Minister Celestino Corbacho added in a speech today in Madrid.

Vice President Lucas Papademos said on Sept. 11 the bank will ``do what's necessary to preserve price stability,'' and council member Yves Mersch said the same day said that ``while oil prices have declined, past increases could still trigger a wage-price spiral.''

Recession Looming

Spain's economy will stagnate in the second half of this year, growing at most 0.1 percent in each of the final two quarter, Solbes said. He also said the economy could shrink in the period, with Spain entering its first recession in 15 years. The first half of next year will remain ``difficult,'' he said.

The ECB along with the Federal Reserve and the Bank of Japan initiated a coordinated effort last week to improve liquidity by pumping dollars into the market. Solbes said the bank should do more to make cash available as credit shortages threaten economic activity, Solbes said.

``Some of us think they should go further and provide more liquidity in these difficult times and over longer terms,'' he said.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net