---- by Steve Whitehouse ----
PARIS (AFX) - The European Central Bank will keep interest rates unchanged at today's governing council meeting, with the council wanting to see data on the economic impact of the Sept 11 terrorist attacks on the US before contemplating a further cut in rates, economists said.
The ECB cut the minimum bid rate on its main refinancing operations to 3.75 pct from 4.25 pct last week as part of concerted action by the world's central banks to counter the economic fallout of the attacks. Economists said the rate cut was a preemptive move to counter the adverse impact on confidence which central banks expected the attacks to have, but the ECB will want to see data on how the attacks have actually affected confidence and the economy before moving again. In a poll of 33 economists last week by AFX News and Agence France-Presse, 31 said they expected the ECB to keep rates on hold today. Marie-Pierre Ripert of Caisse des Depots forecast a 25 basis point easing move at this week's meeting, while Antonio Cortes of BSCH predicted that the ECB will cut by 50 basis points today or at the following meeting on Oct 11.
The ECB has certainly left the door open to more cuts once it gets new data, with the central bank's September monthly bulletin taking a particularly dovish tone, economists said.
"Concern over the impact of the attacks on economic confidence was the predominant topic in the bulletin's editorial," said Eckhard Schulte and Rainer Guntermann of Dresdner Kleinwort Wasserstein. And economists noted that the September bulletin, published three days after the rate cut, omitted the ECB's usual description of interest rates as "appropriate to maintain price stability in the medium term".
"We think this leaves the door wide open for further easing in coming months," CSFB economists said.
In the bulletin, the ECB said the US attacks are likely to weigh on confidence and the growth outlook in the euro zone.
Many economists have sharply cut their euro zone growth forecasts in the wake of the attacks, and the slowdown in growth will speed up the decline in inflation back towards the ECB's 2 pct price stability. Inflation was 2.7 pct in August.
"Inflation should return under 2 pct quicker than previously expected, enabling the ECB to cut rates further," said Julian von Landesberger of HypoVereinsbank.
But before it gets figures on growth and inflation, the ECB will be paying particularly close attention to data on consumers' reaction to events in the US.
Consumer spending and retail sales data from individual member countries and the EU Commission's euro zone sentiment indicators in early October will be key figures for the ECB, said Schulte and Guntermann.
Oil price developments, which will be affected by the US response to the attacks, will also be very closely watched.
Overall, the ECB is certainly likely to have sufficient evidence to justify a further rate cut in the fourth quarter, economists said. Twenty-two of the 33 economists polled by AFX and AFP forecast that the next rate cut will come in October or November, with a further six predicting a rate cut in December or at some unspecified stage in the fourth quarter.
The Oct 11 ECB meeting in Vienna is seen by many as a probable date for the next easing move, with the US FOMC and the Bank of England likely to have cut rates again the week before.
"With the Fed looking set to cut again by 25 basis points at its Oct 2 meeting, the ECB in our view will think seriously about following suit at its Oct 11 meeting on falling growth and inflation prospects," said Guillaume Menuet of 4CAST.
"The Fed and the BoE have practically said that they will cut at their next meetings, so I would expect the ECB to cut in early October," said Philippe Weber of CPR.
The BoE monetary policy committee next meets Oct 3-4. The scale of the expected easing by the ECB varies widely, with some, such as Exane economist Emmanuel Ferry, predicting that the ECB will cut by a further 100 basis points between now and the end of the year, taking the minimum bid rate to 2.75 pct.
However, most -- 25 of the 33 -- predict an end-year rate of 3.25-3.50 pct.
And some take the view that the ECB will not need to ease further at all, having already brought forward the cut that it was likely to make later in the year.
"We don't think that the ECB wanted to move as quickly as it did from an economic viewpoint. It did its move to stabilise markets and to prevent a lack of liquidity," said Menno Middeldorp of Rabobank. "So the move they would have made a little later on the basis of economics, they've already actually done." Ulla Kochwasser of Industrial Bank of Japan said: "They will wait a some time to assess the effects of the US terror attacks. But if the effects are really only short-term, pushing back the recovery by a quarter then nothing more will come."