Senior policymakers at the European Central Bank indicated yesterday that it would soon cut interest rates, possibly as early as next Thursday.
In comments apparently intended to prepare markets for a cut, the officials said it was now clear that deteriorating world economic conditions would affect the euro zone's growth prospects.
The statements from one of the ECB's most authoritative figures, Mr Jean-Claude Trichet, the Bank of France governor and Mr Otmar Issing, its chief economist, marked a switch in tone. Until earlier this week the central bank had insisted that the US slowdown was unlikely to have much impact on Europe.
European Union leaders attending the Stockholm summit continued to strike an optimistic tone about the prospects for the EU economy. Mr Pedro Solbes, the EU's economic and monetary affairs commissioner, said: "Europe is by definition the economic safe haven of the developed world at the moment."
The ECB is the world's only major central bank not to have cut rates this year, and markets have increasingly taken the view that its reluctance to do so is bad for growth in the euro zone.
Private sector economists believe the ECB is certain to cut its main rate, which has stood at 4.75 per cent since last October, by at least 0.25 percentage points, either next Thursday or on April 11th when it next meets. Ms Christel Aranda-Hassel, economist at Credit Suisse First Boston, said the ECB might even make a surprise cut of 0.5 points, as it did in April 1999.
A rate cut cannot come soon enough for Germany, the largest euro-zone member, where economic growth virtually ground to a halt late last year.
The likelihood of a rate cut bolstered the euro yesterday on foreign exchange markets, pushing it up by almost one US cent to more than $0.89. European equity markets also rose.
