Thursday, the European Central Bank is expected to reduce its benchmark interest rate further to shore up the economy from prolonged recession.
Economists expect the central bank to cut its key interest rate by 50 basis points to 2% in the first Governing Council meeting of 2009, taking the rate to its lowest level since the rate-setting process began in 1999.
The interest rate on the marginal lending facility is expected to be reduced to 2.75% and the interest rate on the deposit facility is forecast to be slashed to 1.75%. The ECB President Jean-Claude Trichet is scheduled to hold his regular post-decision press conference at 8.30am ET.
On January 13, Trichet had said Eurozone is facing pressing challenges and the economy is expected to confront new challenges given the deteriorating economic conditions.
Wednesday, French Finance Minister Christine Lagarde urged the ECB to consider the recent drop in Eurozone inflation and falling economy when deciding the monetary policy.
Also on Wednesday, the Organization for Economic Cooperation and Development revealed in its economic survey for Eurozone that given the current economic conditions and sharply easing inflation, there is scope for the central bank to cut interest rates further.
The OECD survey revealed Euroarea economic output will decline further in the fourth quarter of 2008 and the first half of 2009 before recovering gradually. The think tank does not expect growth to move above trend rates until the latter half of 2010.
Eurozone entered its first recession since the adoption of Euro in 1999, contracting 0.2% each, in the third and the second quarters of 2008. Raising chances of further rate cuts, inflation in December fell below the central bank target for the first time since August 2007. The central bank aims to keep inflation below but close to 2% over the medium term.
In December, the ECB made its biggest ever rate cut by slashing the key interest rate by 75 basis points to 2.50%.
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