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ECB seen delivering new rate cut

ECB seen delivering new rate cut

The European Central Bank is expected to cut interest rates again on Thursday amid a persistent drip of increasingly bad economic news from the 16-nation euro zone.
The ECB cut its main refinancing rate to 2.5 percent from 3.25 percent in early December, and financial markets expect it to follow that with a somewhat smaller cut this time.
IHS Global Insight economist Howard Archer said he expected a reduction of a half percentage point, which would leave the ECB's rates at 2 percent. That would be its lowest level since December 2005.
"Further out, we believe the ECB will bring interest rates as low as 1 percent by mid-2009 as the euro zone suffers sharp recession," he said. "Interest rates are then seen staying at 1 percent through the rest of 2009."
Even though the ECB has reduced interest rates on three occasions since October from a high of 4.25 percent, its actions have been dwarfed by the more aggressive cuts enacted by the U.S. Federal Reserve and the Bank of England.
In an unprecedented move last month, the Fed ratcheted down its rate to hover between zero and 0.25 percent. The Bank of England cut its rate last week by half a percentage point to 1.5 percent.
The euro zone economy was already officially in recession before the worst of the financial crisis in October, having slumped by 0.2 percent in both the second and third quarters of 2008.
On Wednesday, Germany's Federal Statistical Office offered a rough preliminary estimate that the country's economy _ Europe's biggest _ may have shrunk by as much as 2 percent in the fourth quarter. It said Germany's annual growth last year was 1.3 percent, only about half the previous year's level.
Euro zone inflation has dropped to an annual rate of 1.6 percent amid sliding oil and commodity prices and below the ECB's mandate to keep inflation "close to, but less than 2 percent" for the first time since August 2007.
As a result, many economists think a pause in rate cuts _ the consensus view just a couple of weeks ago _ would be damaging to the economy, especially as it may push the euro higher once again, hitting exporters hard.


Updated : 2021-06-19 13:22 GMT+08:00