--- by Stuart Williams ----
FRANKFURT (AFX) - European Central Bank president Wim Duisenberg has severely dented hopes of an ECB rate cut this Thursday, but a summer trimming of rates by the bank remains on the cards, economists said.
They said Duisenberg's remarks in a prepared statement to the European Parliament were intentionally made to defuse expectations the ECB would cut rates after its governing council meeting.
When the ECB surprised the market by cutting rates on May 10, it was fiercely criticised for failing to prepare observers for a monetary easing.
"The probability that the ECB will do nothing on Thursday has become much, much larger with Duisenberg's remarks," said Michael Schubert at Commerzbank. "Even more so as they were made in a written statement and not in response to a question."
Duisenberg told the European Parliament in Strasbourg that the governing council's stance from its last meeting that rates are appropriate to safeguard price stability still applies.
"Since the last meeting of the governing council, there has not been any new information that would justify changing this assessment", Duisenberg said.
Economists said the only major data to come between now and Thursday afternoon is German new manufacturing orders and unemployment data, both highly volatile numbers that are unlikely to change the ECB's position.
"We expected there would not be a rate cut this Thursday and this position has been strongly supported by Duisenberg's remarks," said Rainer Satoris at HSBC Trinkaus.
Many economists had forecast a rate cut for Thursday owing to the dramatic slowdown in Germany's economy and a moderation in national June inflation data.
Gulliame Menuet, economist at 4Cast, said he has now pushed back his forecast of a rate cut this week.
"The odds were very balanced and there was nothing to choose between July 5 and July 19", he said. "Now it will be either July 19 or August 2 -- we are going to have to see what the data does," he said. Commerzbank's Schubert said he expects the ECB to cut rates before the summer break, which means Aug 2 at the latest. "By then they will have a clear indication of inflation developments, with national data for July and euro area-wide data for June," he said.
Economists said the ECB is obviously concerned about the surprise leap in M3 money supply growth last month and the May inflation rate of 3.4 pct.
They said statements from the ECB indicate governing council members are cautious on whether June's more moderate national inflation figures marks a turning point for inflation.
"It is certainly possible the ECB will cut rates on July 19, but the ECB will want euro zone inflation to fall below 3 pct," said HSBC's Satoris.
Some economists said they are surprised Duisenberg made such a clear indication rates would remain on hold before consulting with the heads of the national central banks on Thursday.
"I am curious why the collegues from the national banks seem not to have been asked about this," said Commerzbank's Schubert. "But it may be that at the last governing council meeting they agreed to leave rates on hold now, so long as the data did not surprise."
Economists however cautioned the ECB's past record of unpredictability means a rate cut on Thursday can never be ruled out. Klaus Baader, economist at Lehman Brothers, said he is sticking by his forecast of a 25 basis points cut on Thursday, despite the apparent clarity of Duisenberg's remark.
"You would be mad to run with that (Duisenberg's comment). If you had followed the ECB's previous indications on monetary policy you would have been badly wrong.
"What Duisenberg said makes me a lot more uncomfortable with my forecast, but I will not change it now," he said.