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FRANKFURT, Oct 9: A majority of economists here expect the European Central Bank to cut rates when it meets in Vienna on Thursday, to boost industrial and consumer confidence in a region still reeling from terrorist attacks in the US last month.
In a poll of 33 economists by AFP and its financial news subsidiary AFX, 21 said they expected the ECB to lower euro-zone borrowing costs again at its regular fortnightly meeting.
There are plenty of reasons for cutting, said UBS Warburg economist Keith Gaynor.
Inflation is falling faster than either the ECB or the markets previously thought and area-wide growth is going to be lower than anticipated.
The need for further monetary easing was therefore clear.
The only issue is tactics — timing and presentation, Gaynor said.
With the markets expecting a cut, the ECB should just deliver instead of trying to surprise everybody.
The ECB only recently sliced half a percentage points of its key rates on September 17 in an exceptional move to boost confidence following the deadly and devastating terrorist attacks in the US a week earlier.
That move caught the world’s financial markets completely by surprise — it was decided in between the bank’s regular fortnightly meetings and it was agreed in concertation with other major central banks around the world, such as the US Federal Reserve, the Swiss Central Bank and the Bank of England.
Since then, ECB officials have insisted that it is back to business as usual for the guardian of the euro, which will return to setting interest rates only on the basis of its anti-inflation mandate.
But even from this narrow perspective, there is sufficient evidence to cut rates, said Merrill Lynch economist Sharda Dean.
Slowing area-wide growth would lead to a further easing of inflationary pressures.
External pressure is certainly building up on the ECB to act and help steer the global economy away from recession.
The US Federal Reserve has cut its key rates nine times this year, slashing borrowing costs in the US by four full percentage points.—AFP
