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European, British Central Banks Meet to Weigh Rate Cuts

April 08, 1999|Bloomberg News

The European Central Bank meets today to ponder an interest rate cut for the Continent, but some analysts say the bank might postpone reducing rates to avoid further undermining the struggling euro currency's value.

Of 40 investors, analysts and traders polled by Bloomberg News in Europe, a majority of 22 said the ECB won't cut rates. Of the 18 who expect a cut, most said the benchmark short-term rate will drop to 2.75% from the current 3%.

The ECB is under pressure from companies and governments to lower borrowing costs to boost consumer and corporate spending and counter slowing economic growth in the 11-country euro bloc.

While the ECB acknowledges that growth prospects have clouded, the bank's officials have also expressed concern that a rate cut would lead to a further decline of the common European currency.

"It's a tough call," said Alexander Kockerbeck, an economist at Dresdner Bank. "While the ECB clearly is concerned about the growth outlook, the euro certainly wouldn't like a rate cut."

The euro's value has faded from $1.18 at the start of the year to $1.08 now. Lower rates would make European bonds less appealing, potentially weakening the euro further as money seeks higher-yielding securities elsewhere.

Separately, the Bank of England also meets today, and economists see greater urgency for a cut in U.K. interest rates after Europe's third-biggest economy virtually ground to a halt in the fourth quarter.

Most economists expect the bank to cut its 5.5% benchmark rate.

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