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ECB may cut interest rates
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March 25, 2001: 5:14 a.m. ET
European Central Bank may cut interest rates on Thursday amid weaker outlook
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LONDON (CNN) - The European Central Bank may cut interest rates on Thursday amid signs the slowdown in the U.S. economy is beginning to bite.
Half of the economists polled by CNN said they expected a rate cut, which would be the first in nearly two years, this week while the rest said a cut would come at the following ECB bi-weekly meeting on April 11.
"A 25 basis point (or 0.25 percentage points) cut is likely next Thursday, while 50 basis points can not be ruled out," economists at Bear Stearns wrote in a note to investors. Interest rates currently stand at 4.75 percent.
The "ECB's chief economist Otmar Issing now realises that the Bank must stop harping on about the recent run of high inflation data," Bear Stearns added.
The ECB, which sets interest rates for the 12 nations that make up the eurozone, last cut rates in April 1999 and has been arguing stubbornly that internal demand would shield it against a slowdown in the U.S. and stagnation in Japan.
Issing on Thursday gave the clearest sign yet that the ECB is leaning toward an interest rate cut, saying the economic outlook looked weaker.
He predicted that eurozone inflation, which remains well above the ECB ceiling of 2 percent, would come down amid signs that eurozone growth in 2001 will be hit by the economic woes in the U.S. and Japan.
Bank of France Governor Jean-Claude Trichet, who sits on the 18-member rate setting committee, said on Friday inflation was no longer a main priority.
Mark Wall, an economist at Deutsche Bank told CNN that the "most recent comments (from the ECB) show the outlook is shifting" but he said he was "not sure if they have signalled enough to the markets to cut by Thursday."
Though central banks around the world have been lowering the cost of borrowing in recent months, the ECB, guardian of the euro, is worried that inflation remains above its 2.0 percent target.
Eurozone inflation stood at 2.6 percent in February, up from 2.4 percent in January.
So far this year, the Bank of Japan and the Bank of England have followed the U.S. Federal Reserves' lead in attempting to head off an economic slowdown by easing monetary policy.
Jeremy Hawkins, economist at the Bank of America, is positive of an 0.25 percent point cut next week, while economists at HSBC say there is a 40 percent chance the bank will cut rates on Thursday and a 70 percent chance it will do so on April 11. HSBC expects the ECB to lower interest rates by a total of 0.75 percentage point by end of year. 
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