The European Central Bank will cut interest rates by at least 25 basis points today, its first rate reduction in a year, according to analysts The cut will come just 24 hours after the European Commission warned that the eurozone economy may contract in the first quarter of 2003. The Commission yesterday said the economy could shrink by as much as 0.2pc in the first three months of the year. It added that the new forecast range, which stretches from negative 0.2pc to growth of 0.2pc, does not change its overall outlook for a gradual recovery next year.
In recent comments, ECB policymakers - including bank president Wim Duisenberg - have indicated their growing concern about growth over the coming months and have also signalled that they expect inflation pressures to ease in the medium term. This opens the way for a reduction in borrowing costs, although the market is divided on how far the ECB will go "I'm still hoping for 0.50pc - it certainly is merited given that the ECB have accepted that inflation is now on a downward trajectory," said Niall Dunne, economist at Ulster Bank Financial Markets //www.fxcentre.com