ECB puts one-month hold on further loan rate cut (Irish Independent)

04 November 2011

The European Central Bank has made it clear it will pause interest rate cuts tomorrow, focusing financial markets on signals of how low the bank can go and the likely scale of a cut they now expect in March.

All but three analysts in a Reuters poll of 85 economists expected the ECB to keep base borrowing costs at 2pc tomorrow after a 50 basis point cut last month.

But the same majority expects the bank to cut its headline rate in March, with most backing it to go to a record-low of 1.5pc, before easing credit costs further to 1pc by the end of June, where they would remain well into next year.

ECB President Jean-Claude Trichet has said the next important policy meeting for the rate-setting council was not until next month.

Mr Trichet and others have underlined the dangers of cutting rates to zero and, as recession engulfs much of the eurozone, economists say the bank will also need to explain that it is not behind the curve.

"If they actually decided to cut rates immediately, that would be interpreted as a sign of emergency," said Bank of America economist Gilles Moec.

"It would indicate they are scared and that is probably not the message they want to send right now. I would expect them to indicate even more clearly that we should expect something in March, and expect something quite significant."

Still, other policymakers have been at pains to play down the chances of rates going as low as those in the US and Japan.

Many economists expect inflation to completely stall or even turn negative, but many ECB policymakers have dismissed the risk of deflation in the 16-country bloc and Trichet said last month the ECB saw risks in the medium-term as broadly balanced. (Additional reporting Reuters)