ECB to resist rates cut this month but cave in October

City A.M. Reporter
THE European Central Bank (ECB) will probably resist growing calls for it to slash interest rates next week, although a stalled Eurozone economy will force the bank to cut them early next year, according to an influential poll of economists.

The escalating debt crisis and new signs that the economy has taken a turn for the worse has prompted some major banks – including JPMorgan, RBS and Credit Agricole – to make high-profile predictions for a rate cut next month.

Ken Wattrett, an economist at BNP Paribas who expects a 25 basis point move next week said: “The case for a rate cut at the first scheduled opportunity continues to build. The threat of an adverse feedback loop between the financial sector and the economy requires a circuit breaker – and as soon as possible.”

There were 32 economists forecasting an interest rate cut by the end of this year, compared with none in the previous six monthly ECB polls, showing how quickly sentiment has turned.

Markets have priced in a quarter-point move next month but there are substantial barriers to the ECB doing so, particularly after President Jean-Claude Trichet opposed the move.