EU commissioner sees room for near-term ECB rate cut

Washington: Falling euro zone inflation and stabilising inflation expectations could make room for a European Central Bank interest rate cut, Economic and Monetary Affairs Commissioner Joaquin Almunia said on Saturday.

"Supported by the easing of commodity prices, the currently high inflation is on a downward trend and long-term inflation expectations are stabilising at a lower level consistent with price stability," Almunia said in a statement.

"If confirmed, these new developments could justify some monetary easing in the near-term," he said in a rare reference to ECB monetary policy at the annual meeting of the International Monetary Fund and the World Bank.

The ECB cut rates by 0.5 percentage point to 3.75 per cent together with other major central banks on Wednesday and economists expect more rate cuts could be in the pipe-line.

ECB Governing Council member Christian Noyer also hinted at such a possibility last Friday by saying that inflation in the 15 countries using the euro would fall below the bank's target of just below 2 per cent in mid-2009.

Euro zone inflation was 3.6 per cent year-on-year in September, down from 3.8 percent in August.

Almunia said in the statement that food prices, one of the major driving forces behind the euro zone inflation surge, have peaked in the first half of the year and would decline somewhat.

He said the financial market crisis had increased downside risks to euro zone economic growth in 2009, which he forecast to "remain weak and clearly below potential".