PARIS (AFX) - Euro zone money supply data may show that M3 growth dropped below the European Central Bank's 4.5 pct reference value in February, economists said.
This will be the first time that this has happened since the launch of the euro in Jan 1999 and could pave the way for an interest rate cut by the ECB, they said.
In a poll by AFX News, 16 out of 24 economists forecast a February M3 growth figure of 4.3-4.5 pct, down from 4.7 pct in January.
Nineteen of the 24 predicted that M3 growth will be at or below the 4.5 pct reference value, with some even forecasting figures as low as 4.0 pct.
Month-on-month M3 growth is also expected to be fairly weak at 0.2-0.4 pct.
The average of the most recent three year-on-year figures, which the ECB pays most attention to, is likely to remain above the reference value. Economists expect this to slow to 4.7-4.8 pct in December-February from 5.0 pct in November-January. No date is set for the February figures, but they are usually released around the 20th business day of the month and are therefore expected next week.
M3 growth peaked at 6.7 pct last April but has been declining steadily since then, particularly as a result of the ECB's tightening of monetary policy between November 1999 and October 2000, economists said.
The ECB has acknowledged recently that inflation risks from the monetary side have become "more balanced" but it has held back from saying that they justify a rate cut.
But the February figures may change that, economists said. "The February M3 data is expected to flag another clear signal to cut rates sooner rather than later. M3 growth has been trending down since May last year. For the first time the M3 rate is set to fall below the reference rate of 4.5 pct," said Adolf Rosenstock of Nomura. "The figures will make it more of an open door to cut rates," said Rajel Khambhaita of BIM-IMI.
A rate cut is in any case required because of the impact of the U.S. slowdown on the euro zone, and the ECB has started to prepare the ground for such a move with a shift in the wording of council members' comments on growth and inflation risks, economists said.
M3 growth could carry on slowing in the months ahead, economists said.
"There is a significant downside risk that the downtrend will become even more pronounced in coming months," said Rosenstock. Even so, the ECB is likely to remain cautious about the private sector credit growth component of the monetary data. Credit growth has consistently been above 10 pct and is not expected to decline rapidly.
In its latest monthly bulletin the ECB said that the strong pace of growth in corporate borrowing in particular requires careful monitoring.
"Growth in credit extended to the private sector remained strong in January and is expected to only gradually moderate in February," said Lorenzo Codogno of Bank of America.
Codogno expects private sector credit growth to slow to 9.8 pct year-on-year from 10.0 pct in January.