The European Central Bank and the Bank of England are likely to keep interest rates unchanged at their meetings on Thursday but monetary policy easing is on the cards for later, analysts and dealers said.
All 72 analysts in a Reuters poll carried out last week said the ECB would hold rates for the ninth month in a row, when they announce their decision at 12.45 pm London time Thursday.
But worries over weakening economic growth will overtake inflation concerns in June, Paul Mortimer Lee, global head of market economics from BNP Paribas, told “Worldwide Exchange.”
“There’s very weak numbers coming for euro zone GDP (gross domestic product) in coming quarters,” Lee said, adding that rising inflation is squeezing consumers’ ability to spend.
The majority of analysts polled by Reuters see two rate cuts this year, with the first likely in either May or June.
Inflation in the 15-nation euro zone came in at 3.2 percent in January and February, well above the ECB’s stated target of near 2 percent over the medium term.
Reasons to Cut Rates
The inflation pressures cited by ECB President Jean-Claude Trichet as the key reason for holding pat on monetary policy are largely due to external factors such as booming food and oil prices.
Home-grown inflation "is actually pretty moribund", Lee said, and the euro’s strength against the dollar is offsetting some of the effects of energy price rises.
Trichet’s news conference after the decision will be closely watched for clues on future interest rate moves. It will be broadcast live on CNBC.com at 1.30 pm.
The Bank of England is also expected to leave interest rates at 5.25 percent when it announces its decision at 12 noon, but has signalled rate easing in the near future as it tries to limit the effects of a slowdown in global economies.
“I would be looking for 100 basis points off (UK) interest rates over the coming year,” Mark Cliffe, global head of economics and strategy from ING Financial Markets, told “Worldwide Exchange.”