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ECB leaves rates unchanged
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October 25, 2001: 7:59 a.m. ET
European Central Bank leaves key interest rate at 3.75%, even as growth slows
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LONDON (CNN) - The European Central Bank left interest rates on hold Thursday, even as growth slows and inflation declines.
Rate setters left interest rates at 3.75 percent but many market watchers expect the central bank to trim rates in November. It last cut interest rates on September 17 in a coordinated move with the Federal Reserve, the Bank of England and Bank of Japan to boost consumer confidence after the terror attacks in the U.S.
The ECB has not been as active as many politicians and market watchers would have liked it to be but the central bank, which sets interest rates for the 12-nation euro zone, has a mandate to control inflation below 2 percent.
"The ECB's target inflation rate is less than 2 percent and they should hit that by January so the chances of an interest rate cut by a quarter point are high," Robert Parker, fund manager at Credit Suisse Asset Management, told CNN before the rate decision. "Interest rates could fall to as low as 3 percent or 3.25 percent by next year."
As European inflation falls -- with the annual rate dipping to 2.5 percent in September -- market participants said the ECB has more leeway to trim its key lending rates. But as recently as Thursday, ECB board member Jean-Claude Trichet said the central bank did not believe it had "immense" room for action on interest rates.
The ECB has cut interest rates three times this year, while the Fed has culled rates nine times to 2.5 percent, its lowest level in almost 40 years, as it attempts to save the world's biggest economy from a bruising recession.
And the Bank of England has trimmed rates six times to 4.5 percent, to shore up confidence.
Germany's closely-watched Ifo business climate indicator plunged to a near eight-year low in September and German Finance Minister Hans Eichel sharply lowered forecasts for growth in Europe's biggest economy this year and next.
Eichel said the economy would grow 0.75 percent this year, down from the previous official forecast for 2001 of two percent growth. And growth next year will be between 1 and 1.5 percent, down from the previous target of 2.25 percent.
Sonja Gibbs, economist at Nomura International, told CNN before the decision: "It would be disappointing if there isn't (a rate cut). There has been a lot of political pressure but the ECB could say: 'if you governments are going to pump money into the economy then that is inflationary.'" 
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