European Central Bank seen resisting rate cut, with justification
The European Central Bank will resist political pressure to cut interest rates and is probably right to do so because lower rates would not solve the euro zone's economic problems, according to a Reuters poll. In this week's survey of 58 economists, only one expected the ECB to cut at its next meeting on Aug. 4, with the rest seeing rates on hold at historic lows of 2.0 percent. Euro zone interest rates are already effectively zero after allowing for inflation, which has been running close to the ECB's 2.0 percent target ceiling. Economists who thought a rate cut was uncalled for said it would have an uneven effect across the 12-nation euro zone, doing little to overcome structural disincentives to investment while encouraging house price inflation in some countries. "Interest rates are already very low and the possible growth stimulus from a further decrease appears limited compared to the danger of fuelling unhealthy developments, such as asset price bubbles, household indebtedness (or) misinvestment," said Claudia Broyer at Allianz Group/Dresdner Bank in Frankfurt.
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