The ECB laid out a picture of stuttering euro zone growth and falling inflation today that backed last week's decision to cut interest rates and said it was ready to act again if needed.
The March monthly bulletin largely repeated the ECB's statement after it cut its benchmark interest rate by 25 basis points to 2.50 per cent last week, less than the market expected.
Although the economic uncertainty over a looming war in Iraq and its side-effects cloud the outlook, the ECB said in the report it is prepared to counter any further slowdown.
"Depending on further developments which may change the medium-term outlook for price stability in any direction, the Governing Council stands ready to act decisively and in a timely manner," the report said, closely echoing ECB President Wim Duisenberg's statement at the ECB's March 6th news conference.
Many market analysts expect additional rate cuts. A poll of economists shortly after the March 6th action showed 28 out of 30 expect at least one more cut by the end of June.
The ECB in the bulletin justified its quarter-point cut by saying sluggish growth and the rise of the euro against other currencies would rein in inflation, bringing it below the central bank's two per cent ceiling in the months ahead.
But the expectation of slower inflation depended on moderate wage rises in the euro zone and on oil prices returning to more normal levels after the surge induced by Iraq-war worries.
Oil prices have jumped over $33 for a barrel Brent crude, pushing up transportation and heating costs throughout Europe.
The current low level of ECB interest rates, matching their lowest ever last seen in November 1999, should help offset some of the negative factors undermining business investment and economic activity, the ECB said.
The euro zone should gradually recover once international uncertainty fades. Quarterly growth rates should rise over the course of the year, although growth for the year as a whole would be low, it said.