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European Interest Rate Cut Expected

Markets

Lending: Central Bank president says a report shows that inflation is no longer a threat.

November 06, 2001|NICK ANTONOVICS | REUTERS

BRUSSELS — European Central Bank President Wim Duisenberg gave a clear signal Monday that the bank is poised to cut interest rates after data showed euro-zone inflation eased in October.

Duisenberg's comments after a meeting with euro zone finance ministers are likely to fuel expectations that the ECB will cut its benchmark short-term rate, now 3.75%, at its meeting Thursday.

The U.S. Federal Reserve is expected to cut its key rate today, which would be the 10th reduction this year. The Fed's rate now is 2.5%.

The ECB has been roundly criticized in Europe for its reluctance to lower rates aggressively despite the global economy's slowdown.

Duisenberg has argued that stubborn inflation in Europe has been an impediment to rate cuts.

But a report Monday from the chief euro-zone statistical agency showed that inflation was at a 2.4% annualized rate in October, the closest it has been to the ECB's self-imposed 2% ceiling since January.

Duisenberg made it clear that the bank now believes the inflation outlook is not a concern. "I told the ministers our most recent assessment is that inflation is falling to levels well below the 2% limit," he told reporters. "I am sure that the [ECB] governing council will take all the factors leading to this phenomenon well into account."

European politicians have been afraid of publicly pressing the independent ECB to act for fear it might dig in its heels. But criticism has grown louder in the last month.

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