On the eve of the European Central Bank's meeting tomorrow comes news that the inflation rate in Eur...
On the eve of the European Central Bank's meeting tomorrow comes news that the inflation rate in Europe fell for the first time in five months during June, adding further justification for the central bank to cut interest rates, currently fixed at 4.5%.
Inflation in May hit 3.4%, a level unseen since the euro debuted in 1999. In June, however, consumer prices rose 3% compared to a year ago marginally below expectations of 3.1%. Prices rose 0.1% in June, which were down from 0.6% in May.
Onlookers suggest inflation is likely to have peaked in May but concede that it's unlikely to fall through the central bank's target rate of 2% until next year.
Inflationary figures are not the only factors hinting towards a rate cut. The slowdown in the US as well as the recession apparent in Japan's economy will continue to hurt demand for European products. Furthermore, the EU has already admitted that growth will slip below 2.5% in 2001 compared to the decade beating pace set in 2000 of 3.4%.
Despite these circumstances the market consensus is the central bank will not cut rates tomorrow but is likely to do so in the next three months.
Telecom groups will be especially pleased to see the rates come down because this will lower their interest payments on the estimated $150 worth of bonds they've sold in the last 18 months. Manufacturers' business should also be boosted by a cut in rates as it is expected to increase business investment, which has fallen back of late.
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