--Chief Economists See EMU HICP Falling Below 2% in 2nd Half 2001
--Chief Economists See Euro FX Reaching Parity With Dollar by End-2001

BERLIN (MktNews) - A majority of chief economists at the ten largest German private banks believe the European Central Bank will cut official interest "modestly" in the second quarter, even though eurozone harmonised inflation (HICP) is not expected to fall below the ECB's 2% ceiling until the second half of the year, according to a survey by the German Banking Association (BDB) published Monday.
The ten chief economists also said they expect the euro's foreign exchange rate to rise to parity with the U.S. dollar by the end of 2001. (Editor's note: an earlier BDB press release said the economists expected the euro's exchange rate to average $1 through the end of the year.)
For 2001 as a whole, the chief economists forecast an average inflation rate of 2.1% in the eurozone and of around 2% in Germany.
"In effect, this means that we will have returned to price stability in the eurozone," according to the survey.
"If inflation rates slow as forecast and if money supply growth nears (the ECB's) reference value, a majority (of the chief economists) considers a modest interest rate cut (by the ECB) in the second quarter to be justified," the survey states.
But a minority of the 10 chief economists argue that the ECB should hold rates steady since eurozone growth is expected to remain and inflation risks will persist.
Forecasts by the 10 economists for the refi rate at the end of this year ranged from 4.25%, implying a 50 basis point rate cut, to the current 4.75% rate. The economists agreed some in the markets are now anticipating unrealistically large interest rate cuts by the ECB.
All 10 chief economists agreed that a further weakening of the global economy would eliminate inflation risks and create a different environment for ECB rates.
"Since we do not think this scenario is very likely, the ECB can currently wait for further price and economic data to come in" before deciding on an interest rate cut, the chief economists argue.
Turning to the single European currency, the chief economists forecast that the euro will rise to parity with the dollar by the end of 2001.
"By the end of this year we expect a foreign exchange rate of the euro to the dollar of 1 to 1," the economists state in the survey.
"This expectation is based on our belief that markets are currently being too pessimistic in assessing the economic developments in the eurozone," the economists say.