The European Central Bank (ECB) has given a clear signal that it will not cut interest rates at the meeting of its governing council which takes place today.

In its March monthly bulletin, published yesterday, the ECB said in surprisingly unambiguous terms that the current economic environment pointed to no change in interest rates at present.

However, it also warned that economic growth in the euro zone would slow in 1999, "particularly in the early part of the year".

The ECB said that, although growth of gross domestic product (GDP) was expected to continue in 1999, it would be "at a slower pace than that observed in 1998" (3 per cent).

The March bulletin was released only a day before this week's regular governing council meeting and less than a week after the resignation of German Finance Minister, Mr Oskar Lafontaine.

Many analysts had argued that Mr Lafontaine's outspoken calls for the ECB to cut rates had dissuaded the bank from doing so, for fear of appearing to bend to political pressure.

But the report said: "Taking account of all relevant indicators, the overall outlook for price stability has remained favourable." Upward and downward risks to price stability were still balanced, the ECB argued.

On the downward side, the euro zone economy was slowing and there was also a risk that a continuing decline in industrial producer prices might lead to further downward pressure on prices for consumer goods.

But on the upside, recent wage settlements indicated that the very subdued growth, or even decline, in unit labour costs seen in 1998 would not continue. Furthermore, the weakening of the euro could place some upward pressure on industrial and consumer prices. Monetary developments were also pointing upwards.

Finally, any easing of fiscal policies would worry the ECB. "Taken together, all these factors argue in favour of an unchanged monetary policy stance," the ECB said. "The current stance of monetary policy is appropriate."

"The low levels of short-term interest rates, both in nominal and in real terms, represent a significant decline compared with the levels prevailing a year ago," the ECB added. "At the same time, nominal and real long-term interest rates are still at relatively low levels when viewed in the context of historical patterns and when compared with international levels."

Furthermore, credit to the private sector is increasing "at a high and accelerating pace", which suggests that financing conditions for households and enterprises "are indeed very favourable at this juncture", the ECB said.