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Thursday, 8 November, 2001, 11:03 GMT
ECB under pressure to cut rates
One hundred euro note
Will the ECB opt for its fourth rate cut this year?
Financial markets and many politicians are hoping for an eurozone interest rate cut from the European Central Bank (ECB) on Thursday.

And many commentators think that a cut - aimed at shoring up the economy - is overdue.

The case for action has been mounting fast following the 11 September terrorist attacks and the subsequent string of gloomy economic data.

The ECB has so far been markedly less aggressive than its US counterpart in taking action to try and stimulate growth.

The ECB has trimmed interest rates three times this year to 3.75%, compared to the US Federal Reserve which has cut rates 10 times to stimulate growth.

Inflation fears recede

Remarks by ECB President Wim Duisenberg, coupled with positive eurozone inflation data, have raised expectations that eurozone rates may be cut by as much as half a point.

Earlier this week, Mr Duisenberg welcomed a fall in eurozone inflation to 2.4% in October as a sign that price rises will stay within the ECB's target level of 2% by early next year.

Eurozone inflation has fallen steadily since May this year, when it peaked at 3.4%.

"I'm sure the (ECB) governing council will take the factors leading to this phenomenon well into account," Mr Duisenberg said.

The ECB has previously argued against rate cuts on the grounds that eurozone inflation remains dangerously high.

Euro economy struggling

Although the data from the eurozone is not universally gloomy, there is little doubt that its economy is struggling.

The International Monetary Fund has revised down its growth forecast for the eurozone to just 1.7% this year and 1.6% in 2002.

In France, the eurozone's second biggest economy, a survey of manufacturers this week showed that a majority expect demand for industrial goods to decline during the last three months of 2001.

And German manufacturing orders posted their biggest decline in six years in September.

According to the German Finance Ministry, manufacturing orders dropped by 4.1% during September, well ahead of the 2% decline predicted by analysts. The decline wiped out a surprise 0.8% increase in August.

And the eurozone business confidence index fell in October to its lowest level for five years, reading minus 1.14 from minus 0.57 in September, according to European Commission data.

It was the index's biggest ever one-month drop.

The ECB's decision is expected at 1245 GMT, shortly after an expected rate cut announcement from the Bank of England.

Ray Attrell, 4-cast
"It is very clear that the eurozone economy has been decelerating very sharply"
The BBC's Mike Sergeant
"The ECB is still the world's most unpredictable central bank"
See also:

05 Nov 01 | Business
Eurozone inflation edges lower
25 Oct 01 | Business
ECB leaves rates on hold
24 Oct 01 | Business
Fed sees US economy struggling
23 Oct 01 | Business
Germany 'on the brink of recession'
23 Oct 01 | Business
French shoppers resilient
19 Oct 01 | Business
Euro drops as confidence collapses
19 Oct 01 | Business
Rate cut row mars summit
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