Interest rate cut still on cards

AN interest rate cut is still on the cards in spite of last week’s upbeat comments by the European Central Bank, according to IIB Bank economist Austin Hughes.

Mr Hughes said yesterday that a rate cut was “still a reasonable prospect” and that borrowers could look forward to a 0.25% cut before the end of June.

ECB president Jean-Claude Trichet surprised observers last week with an analysis that was more positive than expected. Mr Trichet said there was no evidence to challenge the bank’s assessment of a modest economic recovery.

But Mr Hughes said data due out shortly would suggest the eurozone was enjoying less forward momentum than originally hoped, which would add weight to the argument for a rate cut.

Mr Hughes said the current health of the eurozone economy was unclear, but there was not yet enough evidence to convince “the more hawkish” members of the bank’s governing council of the need for a cut.

He expected a rate cut as soon as economic data began to provide signs that economic activity had become “lacklustre.” He predicted a series of downbeat figures which could be enough to sway the ECB in favour of a rate cut.