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ECB chief fuels talk of rate cut
BRUSSELS, Belgium -- The head of the European Central Bank on Tuesday fueled speculation of an imminent interest rate cut, saying inflation concerns had eased in the past month while the economy continued to struggle. "Since our last meeting, the evidence has strengthened that inflationary pressures are easing somewhat and downside risks to economic growth have not vanished,'' Wim Duisenberg told a European Parliament committee. Speaking just two days before the ECB meets to set rates, Duisenberg said although inflation could still rise above the bank's target ceiling of 2 percent next year, weak growth and the threat of war against Iraq continue to cloud the economic outlook for the 12-nation euro zone. "There are several downside risks to this [return to potential growth] scenario,'' he said. "They relate to the persistence of macroeconomic imbalances in the global economy, geopolitical tensions and the uncertainty about the size of the adverse effects of the past sharp declines in stock prices on aggregate demand." Economists have been urging the ECB to follow the lead of the U.S. Federal Reserve, which last month cut its key lending rate by half a percentage point. The ECB will announce a decision after its Monetary Policy Committee meeting on Thursday. The ECB has kept rates on hold at 3.25 percent since November 2001, after lowering borrowing costs four time last year. "His [Duisenberg's] comments effectively suggest that there will be a rate cut. It is no longer a question of whether but of how much rates will be cut," Audrey Childe-Freeman, European economist at CIBC World Markets, told Reuters. "He has confirmed that rate cuts were discussed at the bank's last meeting and that since then inflation pressures have eased while downside risks to growth have not gone away." Euro zone inflation eased slightly in November to an annual rate of 2.2 percent, down from 2.3 percent a month earlier. The ECB has said it still expects inflation to fall below 2 percent sometime in 2003 if oil prices and wage increases remain moderate.
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