ECB expected to stand firm on rates, despite concerns

FRANKFURT, Feb 3, 2008 (AFP) – Faced with record inflation, the European Central Bank is expected to resist pressure for an interest rate cut when its governing council meets this week, in the wake of moves by the US Federal Reserve. They could come as soon as the second quarter of this year, some say. Despite a spectacular decrease in US lending rates and growing concern over the 15-nation eurozone economy, analysts say the ECB will keep its main rate at 4.0 percent, where it has been since June, at Thursday’s meeting.

It does not feel the time has come to cut the cost of borrowing, or even to signal that a cut is in the cards — in contrast to the Bank of England, which economists expect to ease its main rate the same day.

“ECB president Jean-Claude Trichet will show more concerns about the economy,” said Commerzbank chief economist Joerg Kraemer.
But that would be it.

“At the same time, he will warn about the risks of inflation, as he did at the beginning of January, and stress that the ECB is ready to act” to counter them, a way of threatening tighter monetary conditions, Kraemer added.

Eurozone inflation hit 3.2 percent in January, fuelling concern at the loss of purchasing power in Europe. Trade unions, espe