Frankfurt, Feb. 6 (Bloomberg) -- The European Central Bank will probably keep interest rates at a three-year low today as policy makers wait for evidence the economy will recover from the slowest growth rate in almost a decade, analysts said. All of the 32 economists surveyed by Bloomberg News said the ECB will leave borrowing costs for the dozen nations sharing the euro at 2.75 percent today. Twenty expect lower borrowing costs by April. The Bank of England is expected to leave rates at 4 percent at a separate meeting today, analysts said. ``The ECB isn't in a big hurry,'' said Armijn Eikelboom, who helps manage 1.2 billion euros ($1.3 billion) at Kempen Capital Management in Amsterdam. Still, ``it's keeping a close eye on the economy.'' Eikelboom expects the bank to lower rates next month at the earliest. The ECB said the half-point reduction in December should boost growth in the region's $7 trillion economy. Since the rate cut, German unemployment rose to a 4 1/2-year high and European manufacturing shrank for a fifth month. Alcatel SA, Europe's biggest maker of telecommunications equipment, yesterday forecast sales will drop as much as 30 percent this quarter. Policy makers have indicated the ECB won't rush to lower rates. ``Our main scenario remains that inflation will continue to be restrained and that economic growth will recover in the course of the year after a moderate start,'' ECB Chief Economist Otmar Issing said in an interview last week. ``It would be counterproductive'' to act at a time when the economy is held back by the threat of a U.S.-led attack on Iraq, Issing said.
Slowing Inflation
The ECB will announce its interest rate decision at 1:45 p.m. Frankfurt time. ECB President Wim Duisenberg will hold a press conference 45 minutes later. The Bank of England will release its decision at noon London time. Slowing inflation gives the ECB room to act. The inflation rate in the region fell to 2.1 percent in January from 2.3 percent the month before. The ECB expects the rate of increase in consumer prices to drop below its 2 percent limit this year. Investors expect cheaper money by the end of the first half, interest rate futures trading shows. The rate on a three-month euro deposit maturing in June rose 1 basis point yesterday to 2.46 percent. The current three-month money market rate is 2.80 percent. A basis point is 0.01 percentage point.
Bank of England
The Bank of England will probably keep its lending rate at 4 percent today, the lowest since 1964, for a 15th month, predicted all 29 analysts polled by Bloomberg News. ``The bank will hold off for now until they see the trend in retail demand,'' said Peter Osler, an economist at Man Group Plc, the world's biggest publicly traded hedge fund company. Retailers including Dixons Group Plc, Europe's second-largest consumer-electronics vendor, have said consumer spending, which fuels two-thirds of the U.K. economy, is slowing. Still, December retail sales increased at the fastest pace in eight months, boosted by discounting. Bank of England Governor Sir Edward George said on Jan. 21 that the U.K. economy is ``pretty sound'' and he expects a ``slow pick-up'' in the global economy. U.S. Federal Reserve policy makers last week held their benchmark overnight bank lending rate at a 41-year low of 1.25 percent, aiming to give the economy more time to recover from a ``soft spot'' in the final months of last year. The U.S. economy grew at a 0.7 percent annual rate in the fourth quarter, the slowest pace since the third quarter of 2001. At the same time, businesses increased investment by 1.5 percent, the first gain in two years. About a fifth of Europe's exports are destined for the U.S.
Declining Confidence
The European Union said the economy of the dozen nations sharing the euro may shrink this quarter after growing at the slowest pace in almost a decade last year. Consumer confidence in January fell to almost a six-year low and executives became more pessimistic for the first time in five months amid concern about jobs and a possible war in Iraq. Bundesbank Vice President Juergen Stark this week said the German economy may have shrunk last quarter. German factory orders dropped in December, a report will probably show at noon Berlin time. French January consumer confidence plunged to a five-year low, the government said. Oil prices have risen 30 percent since mid-November on concern of a war in Iraq. The U.S. and U.K. are pressing for military action to force Iraq to comply with United Nations resolutions calling on Saddam Hussein to disarm.
Euro's Appreciation
The 10 percent gain in the euro against the U.S. dollar since mid-October is damping effect of higher oil prices on inflation, and it may prompt the ECB to lower rates sooner than it would otherwise do, investors said. ``The effect of the euro is like tightening'' monetary policy, said Kempen Capital Management's Eikelboom. ``The ECB will at some point have to compensate for the effect by lowering rates.'' Some companies say the euro's rise may curb exports. Siemens AG, Germany's largest electronics and engineering company, last month said the gain is ``a problem at all our European production sites.'' Air Liquide SA, the world's largest maker of industrial gases, has said fourth-quarter sales fell on the stronger euro. ECB council member Ernst Welteke last week told reporters in Brussels the euro's rise ``could have a negative impact on the economy, if it keeps going.'' //www.quote.bloomberg.com