Despite slower economic growth, the European Central Bank will most likely not lower interest rates soon, due to concerns about rising inflation, according to one key policy maker.

ECB policy maker and Austrian central-bank head Klaus Liebscher said Monday record-high oil prices are starting to push up wages on the continent, Bloomberg News reported Monday. Oil hit a record high $117.60 per barrel Monday before retreating slightly at mid-day.

Liebscher's comments pushed the euro higher in early trading Monday, with the continent's currency rising about 1 cent to $1.5937 versus the dollar, and climbing about seven-tenths of a yen to 164.60 yen versus Japan's yen.


In the face of the anemic U.S. economy, which many economists believe is already in recession, many economists and business executives have argued during the past six months that an ECB rate cut will be needed to stimulate demand in Europe, and, by extension, to maintain conditions suitable for adequate global growth. These economy watchers argue that it will be difficult, if not impossible, for the global economy to grow with both the U.S. and Europe operating at below-trend growth levels.

Others disagree, arguing that emerging market growth, led by China, is sufficient to maintain global growth in the face of underperformance by the other economic powers. Economist Peter Dawson is in the former camp, not the latter.

"We're getting our first real test of the globalization theories with the ECB's stand-part stance. Demand is sapping in the states and growth is slowing in Europe. New school theorists say China will be enough to keep demand sufficient globally but I think there's far too little evidence yet to be that confident about China, this soon," Dawson said. "We're going to need some stimulus from Europe if U.S demand does not pick up in the second half of the year."

Still, investors / traders should not expect a large monetary move by the ECB. The ECB's different central bank responsibilities, the institution's overly-hawkish bias, and the stance that places most of the blame for the global economy's ills on the United States, will "foment to limit the decreases," Dawson said, when they occur.

How much of a rate cut can investors expect, in Dawson's interpretation? Perhaps 50 basis points, in, two 25-basis-point cuts, he said. The ECB's benchmark interest rate, the refinance rate, is 4%. However, Dawson qualified that prediction by stating that all bets were off, if Europe's inflation rate continues to increase in Q2 2008.