The European Central Bank's (ECB) credibility will come under attack and the euro will resume its downward spiral after today's announcement interest rates will remain on hold, economists said.
They said the ECB's decision to hold rates steady despite declining euro zone growth and relatively benign inflation will only heighten doubts about the central bank's ability to manage monetary policy and add to the lack of confidence in the single European currency.
They said the ECB's stance will also draw unfavourable comparisons with the US Federal Reserve and the apparently gravity-defying dollar.
BNP Paribas economist Mr Ken Wattret conceded today's decision was consistent with the ECB's message recently that a rate cut is not imminent.
"The ECB has done what it told us two weeks ago it would do - take more time to assess the broader range of economic data and not panic," he said.
"However, in terms of a comparative assessment in terms of what the Fed has been doing and also an assessment of what the ECB signals have been on the real economy, then I would expect the criticism to build up over the next fortnight because I guess the next batch of euro zone data early next month will be really weak," he said.
Bank of America economist Mr Jeremy Hawkins said that already the ECB has been seen as having little credibility.
"The more they remain on hold, the further they fall behind the curve and the greater the pressure for them to make a bigger move eventually," he said.
As for the euro, which has already fallen on the announcement, Mr Hawkins said it will remain weak.
But economists predicted the ECB will cut by at least 25 basis points at the November 8th governing council meeting, just two days after the Fed's rate-setting open market committee next meets.
AFX