ECB has Room to Slash Early

The European Central Bank has more room to cut interest rates to a record low early next year after reports showed the sovereign debt crisis is damping inflation pressures.

The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, fell to 2 percent in November from 2.6 percent in October, the Frankfurt-based central bank said today. Growth in loans to households and companies across the 17-nation euro area also slowed, while inflation in Germany, the region’s largest economy, decelerated in December.

The data reinforce the view “that underlying inflationary pressures are easing and that the ECB has ample scope to cut interest rates again in the early months of 2012,” said Howard Archer, chief European economist at IHS Global Insight in London. “Euro-zone inflation is poised to retreat markedly over the coming months.”

The ECB lowered its benchmark rate (EURR002W) to 1 percent in December, matching the record low, and stepped up efforts to flood the banking system with cash as the debt crisis threatened to engulf Italy and Spain. It may take its key rate into uncharted territory within months as the economy teeters on the brink of recession, according to economists such as Jacques Cailloux at Royal Bank of Scotland Group Plc.

Bloomberg

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