Data shows interest rates are set to fall

EUROPEAN interest rates are set to fall, the latest economic data shows.

Most economists believe the European Central Bank (ECB) will cut rates next week following a further falls in inflation and consumer sentiment in the euro zone.

Hopes of another rate cut were further boosted by Bundesbank president, Ernst Welteke who has given a stronger indication than ever before that the ECB could cut rates at its policy setting meeting next week.

In an interview with the business daily Handelsblatt about the prospects for a reduction in euro-zone borrowing costs on December 5, Mr Welteke said: “Overall, the price climate has become less worrisome since the last meeting” of the ECB’s governing council.

“This time, it will certainly be discussed whether the time has come for a rate cut and if so, whether rates should be cut by a quarter or a half point,” said Mr Welteke .

The ECB will now be a weighing up of whether the time has come for a rate cut, and if so, whether it should be by 25 or 50 basis points.

Meanwhile, Ireland’s annual adjusted private sector credit growth was unchanged in October from the previous month at 13.5%, the latest figures from the Central Bank show.

The annual rate of mortgage growth edged up to 21.2% from 21.1% in September, while the annual adjusted growth rate for private-sector credit excluding mortgages fell to 7.9% from 8.8%, the bank said.

The rate of private sector credit growth has caused some concern at the central bank in recent years. While well down on the peak of more than 25% in 2000, the growth rate remains more than double the euro zone average. Lending by credit institutions in Ireland to non-government Irish residents contracted by nearly 700 million to 140.5 billion.

Credit institutions in Ireland contributed 134 billion to the euro zone’s M3 broad money stock last month, some two billion more than in September.

Data released yesterday showed the European Union’s single currency inflation rate unexpectedly fell to 2.2% in November from 2.3% in October, according to an early estimate by EU statistics agency Eurostat, which bore out repeated forecasts by European Central Bank officials that price pressures would abate.

Such predictions have got financial markets looking to the ECB’s policy meeting next week for the first cut in rates in more than a year, even though inflation has come in above the bank’s self-set 2% ceiling for four months running.

The case for a rate cut was further bolstered by a European Commission report which showed euro zone consumer sentiment hit a five-year low in November, outweighing an improvement in industrial confidence and driving overall economic sentiment to its lowest in a year.