ECB weighs rate cut as eurozone struggles
Frankfurt, Germany - Economists say the European Central Bank could cut interest rates as soon as Thursday because of fears that the euro area's economy isn't recovering - even though top bank officials themselves caution that a cut won't do much good.
Market expectations have risen in recent days of a reduction in the ECB's benchmark rate from its current record low of 0.75 percent when bank's 23-member governing council gathers to debate the issue in Bratislava, Slovakia.
The economy of the 17 European Union countries that use the euro certainly needs a boost. The ECB says the eurozone will shrink 0.5 percent for all of this year and unemployment is at 12.1 percent. Meanwhile, annual inflation is only 1.2 percent, well below the ECB's goal of just under 2 percent. That gives the ECB freedom to cut if it wants to.
The low inflation data make it "virtually impossible" that the ECB will fail to lower the refinancing rate Thursday, said Janet Henry, chief European economist at HSBC. Cuts done at the wrong time can worsen inflation, but it appears there is little risk of that for now.
At 0.75 percent, the ECB rate is still higher than at other major central banks. The Fed is at 0-0.25 percent, the Bank of Japan at 0-0.1 percent, and the Bank of England at 0.5 percent.
ECB president Mario Draghi said at his last news conference April 4 that bank officials "stand ready to act" if their forecast for a recovery later this year appears to not be coming true.
But economists caution a cut isn't a sure thing Thursday. Some say that the bank may wait until its June rate meeting, when it has new staff economic projections to justify any move.
Whatever the decision on Thursday, Joerg Asmussen, the bank's chief of international relations, cautioned last week that the "pass-through" from any cut to the wider economy would be "limited."
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