European rates must be chopped

Country:  Bulgaria; France; Ireland; Italy; Malta and Gozo; Portugal; Southern Cyprus; Spain

1 December 2008

President of the European Commission, Jose Manuel Barroso, yesterday called on European Central Bank (ECB) to cut interest rates this week in order to boost the economy.

'It is true that now the conditions are there for a drop in interest rates,' Barroso told RTL radio.
'I am awaiting decisions from the European Central Bank that go in this direction,' he said, declining to comment on the scale of a possible rate cut.

ECB President Jean-Claude Trichet has said that the bank could cut rates at its next meet on Thursday as long as there is evidence that inflation pressures have eased.

But with Barroso admitting that deflationary fears now existed among some economists, an interest rate cut from its current level of 3.25%, which would lower the cost of borrowing a mortgage to buy a home in the eurozone, looks more than likely.

A recent Reuters poll showed that of 81 economists surveyed, 56 expected the ECB to cut rates by 50 basis points this week, while 24 predicted a cut of 75 or 100 basis points. One analyst forecast a 25 basis point reduction.