---- by STUART WILLIAMS ----
FRANKFURT (AFX) - The European Central Bank would put its credibility on the line if it were to make a quick reduction in interest rates in response to last night's surprise 50 basis points cut by the Federal Reserve, economists said.
They said a quick cut in interest rates at the next April 26 governing council meeting would mark a spectacular U-turn by the ECB, after president Wim Duisenberg made distinctly hawkish noises at last week's news conference.
Duisenberg said then inflation risks have diminished rather than disappeared in the euro zone and emphasised he sees no danger of a global recession.
"Next week is unlikely to see a knee jerk ECB reaction to the Fed. If they surprise us their credibility would suffer after last week's comments", said Holger Fahrinkrug at UBS Warburg.
"It would be too unusual for the ECB to react at its next meeting... it has to look at its own reputation. I think they can resist the pressure", said Commerzbank economist Michael Schubert.
ECB members also continue to emphasise the euro zone's independence from the Federal Reserve and the U.S. economy, economists added.
Bundesbank president Ernst Welteke indicated in interview with a German magzine yesterday that the ECB is independent of the Federal Reserve as it has a different mandate -- exclusively to ensure price stability.
"We orientate ourselves only on our legal duty - to make sure prices are stable", Welteke said.
Moreover, the euro zone economy remains in a more robust state than it U.S. counterpart, with growth remaining at or above its potential level and inflation showing no sign of abating, economists said. "The pictures in the U.S. and the euro zone are completely different... you cannot just assume they are the same", said Lothar Hessler at HSBC Trinkaus.
Economists said heavyweight ECB governing council members in particular continue to point to risks to price stability which are persisting due to the fall out from the BSE crisis and the high price of oil.
"The next months are going to bring very little joy on the price developments side", said Stephan Rieke at BHF Bank. "In this environment it is going to be very hard for the ECB to make a U-turn", he added.
According to economists at Morgan Stanley, German CPI figures for a April are likely to provide another "unpleasant surprise" with the headline year on year figure seen up 2.7 pct compared with 2.5 pct in March.
Economists said the ECB's continued concern about inflation means it will only cut interest rates once euro zone HICP comes close to the stability ceiling of 2 pct.
Today's euro zone March HICP figures showed a rise of 2.6 pct yr-on-yr, indicating a drop to the 2 pct level may not be on the cards for some time.
"In our eyes they (the ECB) will cut only in reaction to falling inflation, keeping real rates more or less stable", said UBS Warburg's Fahrinkrug.
However economists added that the Fed rate cut will put additional outside pressure on the ECB, as the chorus from politicians for rapid rate cuts grows ever louder.
The pressure is seen increasing further with Ecofin and G7 meetings due to take place before the end of the month, where politicians are expected once more to make their voices heard.
"The political pressure is going to increase", said Commerbank's Schubert. "All the organisations that have appealed for interest rates to be cut last week are going to start again."
In an interview with Boersen-Zeitung this morning, Belgian finance minister and euro group president Didier Reynders once again hinted strongly that the ECB should cut rates, saying the signals for economic slowdown in Europe are mounting.
Yesterday, IMF managing director Horst Koehler also called for a rate cut from that ECB, to help the world economy at a "critical period".
However economists noted that the ECB, and in particular president Duisenberg, have been at pains to emphasise the outside pressures do not play a role in their monetary policy deliberations.
At last week's news conference, Duisenberg said he "hears but does not listen to" the external views on monetary policy.
BHF Bank's Rieke says the outside pressure is certainly there, but the ECB has boxed itself into a corner with its consistently hawkish rhetoric from which it cannot move without damaging its reputation.
"The ECB has moved into a position where it is going to be very hard for it to react quickly the the Fed rate decision", he said.