The president of the Bundesbank has hinted that the European Central Bank (ECB) will leave interest rates unchanged this week.

The remarks will confound expectations of economists and will cast a shadow over today's Ecofin meeting of euro-zone finance ministers.

Asked by the Frankfurter Allgemeine Zeitung about the prospect of a rate cut, Mr Ernst Welteke said interest rate reductions produced "no quick effects". He pointed out that the ECB had already reduced interest rates by a full percentage point this year.

"On the other hand, the core inflation rate has risen throughout the year, even while the price index is receding," said Mr Welteke.

"We must prevent long-term inflation expectations from building because further interest-rate reductions could possibly lead the liquidity supply to become too great," he said.

Mr Weltecke said the economic downturn following the September 11th attacks was "to a considerable extent psychological. Neither fiscal nor monetary policies can turn things around and strengthen the confidence of consumers and corporations," he said.

He said it was pointless to compare the cautious monetary policy of the ECB with the US Federal Reserve, which cut rates before and after the September 11th attacks to boost customer and business confidence.

Meanwhile the managing director of the International Monetary Fund (IMF) said even with its history of cautious monetary police, the ECB had scope to cut interest rates this week.

"We do not face a danger of inflation, but a danger of recession. I am convinced that the ECB will use their room to manoeuvre to cut rates," said Mr Horst K÷hler to the German news magazine Der Spiegel.

"I don't see that this decision would have risk for the budget and price stability in the medium term," he said.