While the latest comments from the ECB suggest that it is not prepared to slash interest rates quite as aggressively as some other central banks, at least another 50bp reduction this month seems like a near certainty. A worryingly sharp drop in business sentiment lately should see President Trichet striking a dovish tone this month. We still expect a weak economy and rapidly falling inflation to cause the Bank to reduce rates to 1.5% next year, where they will remain for some time.
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