Euro interest rate cut likely, say experts

WEAK economic conditions in the eurozone coupled with a modest recovery point to further easing of interest rates by the European Central Bank (ECB), IIB Bank chief economist Austin Hughes said yesterday.

He added that a further drop in euro area inflation should create scope for an ECB rate cut towards the end of the year.

Mr Hughes said the outlook for the eurozone may be brighter, but present conditions remain tough, with the drop in industrial output suggesting a lack of significant momentum.

Eugene Kiernan, head of asset allocation with Irish Life Investment Managers agreed a rate cut was likely.

Despite the expectations being built into the money markets, he said Irish Life still expects eurozone interest rates to fall this year.

Inflation in the eurozone slipped in July to 1.9% from 2% in the previous month.

Restaurant and drink prices pushed it up while clothing prices pulled it down. Food prices may continue to push it up in the next few months as the effects of the heatwave are felt in prices.

Core inflation, excluding items such as food and energy, in the eurozone continues to fall, down to 1.6% from 1.8%.

Ireland and Greece continue to top the eurozone inflation league. Irish inflation was 3.9% for July, twice the eurozone average.

Mr Hughes said economic data for the euro area continues to paint a mixed picture. "While hopes for a significant upturn continue to build, the degree of forward momentum in recent months has been very limited," he concluded.