The European Central Bank has cleared the ground for more monetary easing but its policymaking council may not find sufficient justification in recent economic data to cut interest rates as early as tomorrow.
ECB chief Mr Wim Duisenberg last Friday signalled in an unusually frank statement that the bank was prepared to act if inflation fell below its two per cent target ceiling earlier than now assumed.
Early October price data from Italy and Germany yesterday confirmed euro zone inflation was heading lower. But the data held no surprises on the positive side and provided no decisive argument for a prompt rate cut, analysts said.
However, they said at least inflation represents no obstacle to monetary easing while plunging business confidence in the wake of the September 11th attacks on the US made a compelling case for a cut.
While a clear majority of economists expect the ECB to trim its key rate, now at 3.75 per cent, by the end of next month, a chorus of ECB decision makers has made plain they would not be hurried into action.
"It will be a very close call. From an economic viewpoint I'd say there's room and the ECB should do something. But what ECB council members said didn't sound like it," said Mr Michael Schubert at Commerzbank in Frankfurt.
Still, mounting gloom over Europe's economy, with dramatic declines in business confidence in Germany and Italy, convinced a substantial minority of economists the ECB would lower cash costs this week.