ECB could cut rates again

THE European Central Bank yesterday signalled it may reduce interest rates again because of continuing subdued economic growth and falling inflation .

“The outlook for price stability in the medium term has improved in recent months, owing in particular to the subdued pace of economic growth and the appreciation of the exchange rate of the euro,’ the ECB said in its monthly report.

The bank, which sets monetary policy for the dozen nations sharing the euro, last week cut its benchmark interest rate by a quarter point to 2.5%, the lowest in almost three and half years.

The reduction, the second in four months, was smaller than most economists expected.

The region’s $7 trillion economy may contract this quarter, the European Union predicts. Western European car sales fell 3.5% last month and Royal Philips Electronics NV said yesterday it plans to shed 1,600 jobs.

“Another rate cut is looming” said Karsten Junius, an economist at DekaBank in Frankfurt and co-author of a 2002 book on the central bank. “The ECB is highly alarmed by the state of the economy.” ECB President Wim Duisenberg said last week the bank trimmed its forecast for economic growth this year to 1%, compared with a December estimate of as much as 2.1%. The inflation rate, which the ECB aims to keep below 2%, climbed to 2.3% in February from 2.2% in the previous month, mainly because oil prices have risen by more than 40% in the past 12 months.