Pressure is mounting on Ireland and other EU countries to begin cutting interest rates amid indications that inflation figures to be published today could pave the way for a reduction, possibly as early as tomorrow.
The impetus for Ireland, Italy and Portugal to follow the lead set by Spain earlier this week, when it reduced rates, is being fuelled by other EU central bankers including Germany's Mr Hans Tietmeyer, the US Federal Reserve and the International Monetary Fund (IMF), which concludes its annual general meeting here today.
One of the central policies of the IMF's package to stabilise global markets is maintaining growth in both the US and Europe, and rate cuts are seen as key to that. The swift departure of the Central Bank governor, Mr Maurice O'Connell, from Washington yesterday added to speculation that an Irish cut is imminent.
The US has already cut interest rates by a quarter of a percentage point to 5.25 per cent, and more is expected. The chairman of the Federal Reserve, Mr Alan Greenspan, warned here yesterday that "the US economic outlook for 1999 has weakened measurably". It was a time, he added, "for monetary policy to be especially alert".
His remarks, which hinted at further reductions in interest rates by the US central bank over the next few months, came as the US dollar plummeted in foreign exchange markets.
EU bankers are now privately admitting that, to guarantee growth, euro rates may have to go even lower than the 3.3 per cent currently expected. The French government has been outlining the case for lower rates, and even Mr Tietmeyer has changed his position slightly, now admitting that German rate cuts may indeed be possible.
EU participants in the IMF meeting admitted yesterday that they were surprised by the depth of the pessimism about the global crisis, saying it had never been taken quite so seriously in Europe. The growing realisation of the scale of the problem has increased pressure on EU countries to begin reducing rates sooner rather than later.
The Bank of Portugal is now expected to reduce rates tomorrow and may well be joined by the Irish Central Bank. The Spanish are already halfway towards full convergence at 3.75 per cent. Finnish rates are very close at 3.4 per cent, with Italian rates at 5.1 per cent and Portuguese at 4.5 per cent.
But Irish rates are at the top of the pile at 6.19 per cent, which means they will have the farthest to fall by the end of the year to meet the convergence requirements of monetary union.
And while convergence of EU interest rates is required as a direct result of the single currency's advent, Mr Tietmeyer among others is selling it to the IMF as the equivalent of an interest-rate reduction in Europe of about 0.4 per cent. The EU bankers also point to the much higher level of US rates.
Speculation intensified yesterday that the Bank of England's key monetary policy committee will cut interest rates when it concludes a two-day meeting today.
And at home, in advance of the publication today of inflation figures for September, National Irish Bank led the way by announcing it was reducing its variable-rate mortgages for existing borrowers from 7.6 per cent to 7.1 per cent. The September consumer price index is widely expected to show that consumer prices are close to peaking, if they have not done so already.
Agreement closer on aid plan for Brazil; Greenspan warning on US economic outlook; Inflation data may prompt interest rate cut: page 18