|
Europe's rate expectations
|
 |
April 7, 1999: 6:45 a.m. ET
ECB and U.K. lean toward rate cuts despite mixed signals about recovery
|
LONDON (CNNfn) - European central bankers will trim interest rates, despite mixed signals about recovery in the European economy, said economists ahead of rate announcements Thursday.
The Bank of England and the European Central Bank are both expected to cut rates by a quarter point. However, most market makers have already priced in a half-point reduction by June.
The FTSE 100 soared to a record intra-day high of 6,447.5 Wednesday after the Bank of England's Monetary Policy Committee began a two-day meeting. Sterling also dipped on expectations of a quarter-point cut to 5.50 percent.
Strong pound hurts exports
Analysts said the bank will be swayed by the negative impact of the pound on U.K. exports. The inflation outlook is relatively benign too, given that price rises are around the bank's target rate of 2.5 percent.
The recent strength of the pound against other European currencies and a downward revision of fourth-quarter 1998 growth also point to a cut, said economists. "Sterling's performance will probably prove the decisive factor," said Stephen Lewis at Monument Derivatives. The pound's rally has left the export sector severely dented.
Lewis warned that while economic fundamentals may lead the bank toward a 50 basis point cut, this has already been discounted. A quarter-point cut is likely to avoid giving the impression that the cycle of cuts which started last September is coming to an end.
Expectations of a quarter-point cut in the euro-zone discount rate by the European Central Bank Thursday have receded slightly though most economists still view the trim as inevitable.
The euro slides
The ECB appears content with the slide in the euro, which is boosting export competitiveness. Though recent French and German employment data implies that labor markets are starting to tighten a little, inflation is all but dead in most parts of the euro zone.
The main concern for the ECB is that growth rates are diverging more than expected, with the German economy lagging behind. The rise in oil prices and the risk of more vibrant economies sucking in inflationary pressures may just lead the ECB to hold off a cut until next month.
Sweden, which remains outside the euro-zone, set the tone last week by cutting its discount rate to 2.9 percent, below the ECB-set level.
-- from staff and wire reports
|
|
|
|
|
 |
|
