Frankfurt, April 11 (Bloomberg) -- The European Central Bank will probablylower its key interest rate for the first time in two years to prevent weaknessin the U.S. and Japan from stalling the region's economy, analysts said. Nineteen of 33 economists and investors surveyed by Bloomberg Newsexpect the ECB's 18 policy makers to lower the benchmark rate a quarterpoint from 4.75 percent at a meeting today. Four predict a half pointreduction. ``The time is right for a cut,'' said Ken Wattret, economist at BNP Paribas inLondon. ``It makes sense to act sooner rather than later, and the ECBshould have already cut two weeks ago.'' With stock prices falling and demand for European exports slowing,companies from Siemens AG to Italy's Pirelli SpA say a rate cut is nowneeded to boost investment and jobs. The ECB is the only major centralbank that hasn't budged this year, saying it needs more evidence inflation iswaning. The slowdown in global growth is taking its toll on Europe. German, Frenchand Italian business confidence is at its lowest in about a year and a half.German unemployment rose for a third month in a row in March, whileFrench companies made fewer goods for the first time in four months inJanuary. The ECB will announce its decision at 1:45 p.m., Frankfurt time, today. Apress briefing is slated for 2:30 p.m.
Growth Estimates Cut
Policy makers have said they want to get prices under control before paringborrowing costs. The rate of inflation in the euro area has exceeded thebank's 2 percent ceiling for nine months. At the same time, the ECB -- andEuropean finance ministers -- have warned slower growth in the U.S. andJapan will hurt the economy. Belgian Finance Minister Didier Reynders, current chairman of the council ofeuro-zone finance ministers, said yesterday he will tell the ECB that he'sworried the economy is losing steam. He is able to attend the meeting ofpolicy makers, though he doesn't get to vote on the decision. Germany's six leading economic institutes yesterday Lowered their forecastfor growth in Europe's largest economy this year to 2.1 percent from 2.7percent previously. They urged the ECB to pare interest rates by half apercentage point before July. Siemens AG, Europe's second-biggest maker of mobile phones, said thesame day it will eliminate 2,000 jobs, or a quarter of its workforce in handsetproduction, as demand declines. The Organization for Economic Cooperation and Development yesterdayalso said it expects a rate reduction this quarter as it lowered the growthforecast for the euro countries to 2.7 percent from 3.1 percent. Last year,the economy expanded 3.4 percent.
Hugo Boss, MAN
German truckmaker MAN AG, electronic circuit-board maker AustriaTechnologie & Systemtechnik AG and Germany's largest fashion company,Hugo Boss AG, have all said they see lower earnings ahead as a slowingworld economy damps demand. The U.S. is the largest investor in the euro zone. The world's largesteconomy absorbs about 13 percent of the region's foreign sales. The euro-area's economy is about three-quarters the size of that of the U.S. Economic growth in the U.S. will probably fall to 1 percent this year,Deutsche Bank AG said, after 5 percent last year. ``The ECB has to cut rates due to the deteriorating economic environment,''said Michael Schiller, economist at DG Bank AG in Frankfurt. ``Growthexpectations might improve if people see the ECB doesn't just care aboutinflation.'' Lower borrowing costs would reduce the price of a mortgage or car loan forthe 300 million consumers from Lisbon to Helsinki. It would make it cheaperfor companies to borrow to build factories, buy equipment and hire workers. A cut would also spur stock markets across Europe, which have tumbled onconcerns about slowing growth. The Dow Jones Euro Stoxx 50 Index hasfallen about 9 percent this year. Shares account for 5 percent of householdwealth in the euro area, according to economists at Exane, a Paris-basedbrokerage.
Inflation Risks
There is an ``environment of increased uncertainty about the globaleconomy,'' the ECB said in a statement on March 30. Several governingcouncil members, who set the price of money in the euro region, have sincecited from the statement. The ECB said it is assessing ``whether and to which extent upward risks toprice stability will continue to decline.'' Euro-area inflation rose to 2.6 percent in February from 2.4 percent theprevious month. The euro region's inflation rate has exceeded the ECB's 2percent limit for the past nine months. The bank's main goal is to keepinflation below that level. Euro-region consumer prices for March, the next in line to be released forthe whole region, are due only on April 19, eight days after today's ECBmeeting and a week before the bank's council assembles again on April 26. The last time the ECB cut interest rates was April 8, 1999, to spur flaggingEuropean growth at a time when the euro-area's inflation rate stood at arecord low of 0.8 percent in February of that year. The bank raised borrowingcosts seven times between then and Oct. 5, 2000. The following is a table with the results of the latest Bloomberg News ECBpolicy survey. Analysts were asked when the ECB would cut rates. All 33responses were sent on Monday. April 11 April 26 May 10 -25 19 5 1 -50 4 2 1 One survey participant expects no change in rates this year.