|
ECB leaves rates on hold
|
 |
December 6, 2001: 7:47 a.m. ET
European Central Bank left interest rates at 3.25 percent, even as economy slows
|
LONDON (CNN) - The European Central Bank left interest rates on hold, as was widely expected, on Thursday, even as the euro zone economy slows.
But economists say the ECB may have little choice but to cut again early next year if economic conditions in the euro zone continue to deteriorate. Germany's economy, Europe's biggest, shrank in the third quarter.
"Another cut is on the cards possibly in the first-quarter of next year," John Butler, economist at Dresdner Kleinwort Wasserstein, told CNN.
The central bank surprised the markets in November by lowering its key rate by a bigger than anticipated half a percentage point - to 3.25 percent - its fourth cut this year. The bank is under more pressure to cut rates, with concerns that the 12-nation euro zone could follow Japan and the United States into recession.
The euro zone economy is expected to grow by 1.6 percent this year and 1.3 percent in 2002 - with the biggest economy, Germany, forecast to grow by an annual rate of about 0.7 percent.
"The ECB's view of the economy is still too optimistic, while its outlook on future price developments - despite current falling inflation -- is not optimistic enough," Stefan Bergheim, an economist at JPMorgan, told Reuters.
Bergheim said the ECB may believe it has already taken worsening data into account in its recent rate cuts, but it would cut again next year
ECB policymakers have avoided giving any hint of fresh moves before the end of the year, even as more evidence showed inflation and the economy continue to cool.
Close to a million job cuts have been announced worldwide in the past few months, according to Reuters, as companies responded to the sharp U.S. downturn.
The U.S. Federal Reserve has cut rates 10 times this year by a total of 4.5 percentage points to 2.0 percent. It is expected to cut again at its next meeting on December 11. The Bank of England left interest rates on hold on Wednesday, leaving rates at a near 40-year low of 4 percent.
ECB council member Yves Mersch suggested last week the ECB should wait for recent rate cuts to take effect before acting again. It main focus is keeping inflation below its 2 percent target. The annual rate of inflation is currently running at 2.2 percent.
"For the foreseeable future, the level of interest rates seems to us to be appropriate," ECB Vice President Christian Noyer told reporters last month. 
|
|
|
|
|
 |
|
