/www.bloomberg.com/ By Sonja Dieckhoefer
Basel, Switzerland, March 10 (Bloomberg) -- Central bankers from some of the world's largest economies, meeting today at the Bank for International Settlements, may discuss how to react should an Iraq war curb global growth further, analysts said.
European Central Bank President Wim Duisenberg on Thursday said the threat of war is already damping confidence, and oil prices have risen 44 percent in the past year on concern of about a possible disruption of supplies.
``They'll give a pretty miserable outlook for the world economy,'' said Dieter Wermuth, an economist at UFJ Bank Ltd. and a former aide to the German government's panel of economic advisers. ``They may say that in case of a prolonged war they'll consult with one another about what action to take.''
United Nations chief weapons inspector Hans Blix said on Friday Iraq is cooperating better, though President Saddam Hussein still needs to ``provide more evidence'' he's destroying his weapons. The U.S. and U.K. are preparing to disarm Iraq by force.
Companies in the U.S. and Europe say the threat of war are prompting them to delay investments. U.S. manufacturing growth slowed and the European services industry shrank last month. In Japan, the Cabinet Office's index of leading indicators for January pointed to a contraction in the world's No. 2 economy.
Bank of England Governor Sir Edward George is scheduled to brief the press about the outcome of the meeting at about 1 p.m. Basel time. The governors convene every two months as part of the Basel-based Bank for International Settlements, the central bank of the world's central banks.
Interest Rate Cuts
The ECB on Thursday pared interest rates for the 12 nations using the euro by a quarter point to 2.5 percent, the second reduction in four months. The euro's value against the dollar has risen by a quarter in the past year, prompting companies including Siemens AG to say they're becoming less competitive.
The ECB has cut rates six times since the start of 2001, half as often as the U.S. Federal Reserve, which has lowered its overnight lending rate to a 41-year low of 1.25 percent. The Bank of England cut borrowing costs eight times in the same period. In Japan, the cost of money is near zero.
A war may prompt borrowing costs to fall even further, analysts said. Some European Finance Ministers, including Austria's Karl-Heinz Grasser and Greece's Nikos Christodoulakis, said that there's more scope for lower rates.
Thursday's rate cut by the ECB ``was a psychological one,'' said Heinz Grimm, chief economist of Bankgesellschaft Berlin. ``A war is a reason for further rate cuts.''
The U.S. and U.K. have deployed 255,000 troops in the Persian Gulf ready to take action against Iraq if President Saddam Hussein doesn't surrender weapons of mass destruction. Germany, France and Russia oppose a war.
The G10 comprises the U.S., Japan, Germany, the U.K., France, Italy, Canada, Sweden, Belgium, the Netherlands and Switzerland.