Analysts divided on ECB rate cut

There is scope for the European Central Bank to cut interest rates on Thursday but they may wait for further data, analysts think.

Most economists in a Reuters survey this week said rates are already low enough at two per cent but the poll also showed that the risk of a further cut has increased.

"Pressure has certainly increased on the ECB and indicators have weakened," Luc van Hecke, strategist at KBC Securities told this website.

"But core inflation is still around 1.9 per cent. I expect the ECB will want inflation to fall further before they make a move."

But Mark Wall, senior economist for Deutsche Bank was more uncertain.

"We wouldn't be surprised if there was a cut on Thursday", he told EUPolitix.com.

"The rhetoric has been a bit softer recently but then the data has been more mixed. It's really unchartered territory."

Speculation of a cut has mounted since president Jean-Claude Trichet said the bank would "re-evaluate the situation" if the economic recovery is not as robust as hoped.

Annual inflation is currently running at 1.6 per cent in the eurozone, well below the bank's two per cent target rate and its lowest rate since November 1999.

And the latest indicator from the European Commission show the euro zone business climate has fallen to a five month low.

Wall thinks a cut could come by the summer if euro growth wanes.

"We expect the bank will trim rates within the next three meetings. But a cut on Thursday is still a distinct possibility," he said.

The ECB governors meet on Thursday morning for their monthly meeting on monetary policy.

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