ECB gears up for rate cut, likely this week

Mon Apr 29, 2013 10:00am EDT
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By Sakari Suoninen

FRANKFURT (Reuters) - The European Central Bank is likely to cut the main euro zone interest rate at its monthly meeting on Thursday as the bloc's economy has weakened further.

Since the last policy meeting on April 4, there have been few signs of the economy returning to growth, threatening the recovery which the ECB has said it expects to start in the second half of this year.

There are also increasing signs of weakness spreading to the euro zone's core. Confidence fell in April and did so by more than expected, data showed on Monday, highlighting the souring mood among companies and consumers since March, after an optimistic start to the year.

Weaker reports, combined with ECB policymakers' statements showing renewed appetite for rate cuts, has changed economists' views and a narrow majority now forecast one when the Governing Council convenes in Bratislava, one of the two meetings it holds annually outside its Frankfurt base.

Senior sources involved in the deliberations say momentum is building for action to help a euro zone economy which has slipped back into recession, a move that some policymakers wanted to take earlier this year.

In a Reuters poll, 43 of 76 economists said they expected the 17-country bloc's central bank to cut rates by 25 basis points to 0.5 percent. At the same time, 57 of 66 said a cut would not have much impact on the economy.

"Most Council members have reached a point where they say we can't keep on doing nothing," RBS economist Richard Barwell said. "They probably feel that cutting rates would be better than doing nothing."

ECB Vice-President Vitor Constancio said last week that the central bank stood ready to act, adding that there was still room to cut rates.   Continued...

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt April 4, 2013. REUTERS/Lisi Niesner