Arab Today, arab today ecb set to halt rate hikes
Last Updated : GMT 18:20:30
Arab Today, arab today
Arab Today, arab today

ECB set to halt rate hikes

Arab Today, arab today

Arab Today, arab today ECB set to halt rate hikes

London - AFP

The European Central Bank will this week call a halt to its recent cycle of rising interest rates, analysts predicted, with no sign that the eurozone's economic and financial woes are ending soon. The ECB raised borrowing costs in the 17 countries that share the euro in both April and June. But analysts expect the bank to signal an end to monetary tightening and even begin paving the way for rate cuts in the coming months, after core economies France and Germany reported a sharp slowdown in growth. Only a month ago, the ECB had appeared to be "preparing us all for a quarter-point rate hike in October. However, the subsequent intensification of financial tensions and faltering growth momentum call for a significant change in rhetoric at this week's meeting," said UniCredit chief economist Erik Nielsen. Jennifer McKeown of Capital Economics also believed that "with inflation risks probably no longer deemed on the upside, the chances of further interest rate hikes have evaporated and a reversal of earlier increases now seems likely." Markets will be looking closely at revised inflation and growth forecasts also to be published by the ECB on Thursday, with both indicators expected to be pushed lower as the debt crisis rages. And that could possibly open the door to potential rate cuts. "We expect the ECB to slash its GDP forecasts, to 1.6-1.7 percent from 1.9 percent in 2011, and to 1.0-1.2 percent from 1.7 percent in 2012," said UniCredit's Nielsen. Berenberg Bank Holger Schmieding said he was expecting the ECB to "shave its growth forecasts modestly and to make a more meaningful revision to its inflation forecast." However, Commerzbank economist Michael Schubert suggested that "unless the growth and inflation outlook deteriorates markedly, there is no reason to expect" the ECB to cut rates just yet. ECB President Jean-Claude Trichet will also be bracing for tough questions about the bank's unconventional and controversial policy of buying the bonds of distressed eurozone countries such as Spain and Italy. The decision, made as investors were driving up Italian and Spanish borrowing costs to unsustainable levels, has touched off a raft of criticism from inside and outside the ECB. Some see eurobonds -- joint bonds guaranteed by the entire eurozone that would reduce borrowing rates for weaker states -- as the only way out of the current crisis. But such a solution is not viewed favourably by key members of the ECB governing council. Austrian central bank chief Ewald Nowotny already dismissed such an option last week. And in an interview in the Wednesday edition of the financial daily Boersen-Zeitung, German Bundesbank chief Jens Weidmann argued: "The leap to community-wide liability without any limitation to national sovereignty would ... undermine the incentive for solid fiscal policy." Some economists suggest Trichet could hint that the ECB is unwilling to continue buying Italian and Spanish government bonds indefinitely, piling the pressure back on Madrid and Rome to get their fiscal houses in order.

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