Central Bank hints at early Euro interest rate cuts

Central Bank governor John Hurley tonight provided a strong hint of significant early European interest rate reductions.

Mr Hurley – a member of the European Central Bank’s governing council told the Irish Financial Markets Association in Dublin that activity in the eurozone economy remained weak and the ECB did not have to wait until uncertainties dissipated before changing interest rates.

Mr Hurley forecast that the overall European growth rate was now set to be lower than the ECB believed likely as recently as the start of this year.

He said that with economic activity remaining weak, inflation could fall further. That would give the ECB more room to cut rates while sticking to its current inflation target of 2%.

Late last year the ECB indicated it was reconsidering its monetary policy, prompting speculation that the central bank would ease its focus on inflation and also take into account growth prospects for the euro zone.

Mr Hurley said the recent sharp appreciation of the euro currency could help dampen inflation, but also slow economic activity if it continued.

He also warned that the growth in the value of the euro would have a stronger impact on Ireland because of the country’s trading links with the United States and Britain.

Following the governor’s speech there was speculation that the current key ECB interest rate of 2.75% could be cut to 2.25% as soon as next month.