Looks like Europe will be getting a rate cut.....maybe this week. Should cause stocks to rally.
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International Herald Tribune
ECB leader hints at a rate cut in March
Eric Pfanner IHT
Monday, February 24, 2003
LONDON Wim Duisenberg, president of the European Central Bank, acknowledged over the weekend that the economies of the 12 countries sharing the euro were unlikely to rebound this year, a strikingly grim assessment that suggests the bank may cut interest rates as soon as next month, economists said..
Duisenberg said a "high degree of worldwide uncertainty" - primarily a reference to the effect of the buildup toward a possible war in Iraq - was taking its toll on the euro zone, which he recently said would grow only 1.6 percent this year. Now, even that anemic rate may be hard to reach..
"If anything, uncertainties about future developments seem to have increased further more recently, and the perspective for an economic recovery toward potential growth already this year is not supported by the most up-to-date information," Duisenberg said..
"This weaker outlook should contribute to lower inflationary pressure," he added, according to a Reuters transcript of his comments to reporters during a meeting in Paris of finance ministers and central bankers of the Group of Seven leading industrialized countries..
Economists said the central bank chief's sanguine view on inflation suggested that the bank could cut its main interest rate aggressively as early as its next monetary policy meeting, on March 6. Before the weekend, many economists had predicted that the bank would lower borrowing costs, but perhaps not until later in the year..
"This latest statement appears to suggest it will come about earlier than expected - perhaps because of significant pressure from Duisenberg's counterparts and finance ministers at the G-7," said Julian Callow, an economist at Credit Suisse First Boston in London. U.S. Treasury officials, in particular, have made no secret of their desire for Europe to adopt pro-growth policies to try to get the global economy out of a rut..
Callow predicts a reduction of half a percentage in the benchmark euro-zone interest rate, currently 2.75 percent, and some other economists see even bigger cuts. The ECB, which manages monetary policy for the euro-zone countries, has been more reluctant than the U.S. Federal Reserve to ratchet down borrowing costs amid a global economic slowdown; the base U.S. interest rate stands at 1.25 percent..
Some analysts say the difference in European and American interest rates has contributed to a surge in the value of the euro against the dollar over the past year. While a strong euro has helped to hold down inflation, which has fallen to near the ECB's 2 percent target, it also makes European exports more expensive in key markets such as the United States, delivering a heavy blow to the troubled German economy in particular..
While Duisenberg said two weeks ago, when the ECB last met, that a rate cut would be a "drop which would drown in a sea of uncertainties," his latest comments suggest he would be willing to act despite the muddying effects of a possible war in Iraq.. |
