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ECB interest rates expected to fall to new low ECB interest rates expected to fall to new low
(about 11 hours later)
The European Central Bank (ECB) is widely expected to cut interest rates later, as it seeks to boost growth amid ongoing fears for the eurozone economy.The European Central Bank (ECB) is widely expected to cut interest rates later, as it seeks to boost growth amid ongoing fears for the eurozone economy.
A cut would be the first in 10 months, and reduce its key interest rate to a new record low. A cut would be the first in 10 months, and reduce its key interest rate to a new record low from the current 0.75%.
Currently rates are at 0.75%, but there have been calls for a further cut amid continuing concerns over the economy, and receding inflationary fears. Concerns are growing about the health of eurozone economies, reflected on Thursday in data showing that German manufacturing shrank in April.
The ECB is due to announce its decision at 13:45 local time (12:45 BST).The ECB is due to announce its decision at 13:45 local time (12:45 BST).
Official data released on Tuesday showed record high unemployment in the eurozone, and inflation at a three-year low. The Purchasing Managers' Index (PMI) for Germany's manufacturing sector, which accounts for around a fifth of the economy, fell to 48.1 in April from 49 in March. A reading below 50 indicates contraction.
That has increased the gloom over the eurozone economy, in which many members remain either in recession or suffering from low growth. It was Germany's second straight month below the 50 line, and its lowest reading since December.
And in France, Italy and Spain, the eurozone's next three biggest economies, the PMI data also revealed contractions in manufacturing activity.
For the 17-nation eurozone bloc as a whole, the PMI index fell to 46.7 last month, from March's 46.8.
"There is nothing here to suggest that manufacturing will turn the corner and stabilise any time soon, putting greater onus on policymakers to act quickly to reinvigorate growth," said Chris Williamson, chief economist at Markit, which collates the PMI figures.
Official data released on Tuesday showed record high unemployment in the eurozone, and inflation at a three-year low.
Austerity fearsAusterity fears
Many economists had already speculated that lower interest rates from the ECB were likely, but said the fresh data released this week made the case for a cut even stronger.Many economists had already speculated that lower interest rates from the ECB were likely, but said the fresh data released this week made the case for a cut even stronger.
The majority of economists polled by the Reuters news agency are forecasting that rates will be reduced to 0.5%.The majority of economists polled by the Reuters news agency are forecasting that rates will be reduced to 0.5%.
Markets are likely to react positively to a cut, but it is not clear what impact, if any, the move will have on the real economy.Markets are likely to react positively to a cut, but it is not clear what impact, if any, the move will have on the real economy.
In recent months there have been growing calls for European countries to move away from austerity measures, which critics say are stifling growth.In recent months there have been growing calls for European countries to move away from austerity measures, which critics say are stifling growth.
Instead there are calls for a greater focus on stimulus measures.Instead there are calls for a greater focus on stimulus measures.
Both French President Francois Hollande and newly-elected Italian Prime Minister Enrico Letta have urged a reconsideration of austerity policies.Both French President Francois Hollande and newly-elected Italian Prime Minister Enrico Letta have urged a reconsideration of austerity policies.
But there are concerns that changes to the ECB's interest rates are not feeding through to those economies most in need of a boost, with potential lenders still worried about the economic health of countries such as Greece and Spain.But there are concerns that changes to the ECB's interest rates are not feeding through to those economies most in need of a boost, with potential lenders still worried about the economic health of countries such as Greece and Spain.