Dec. 7 (Bloomberg) -- A majority of European Central Bank policy makers were open to cutting the benchmark rate yesterday and there is a possibility of a reduction early next year if the economy doesn’t pick up, three officials with knowledge of the Governing Council’s deliberations said.
Rates were kept on hold because of concerns about the negative signal a cut might send in conjunction with the significant downward revisions to the ECB’s growth and inflation forecasts, the officials said on condition of anonymity. Lowering rates will be considered again next month, one of the officials said. An ECB spokesman declined to comment on what is discussed in council meetings, which are private.
ECB President Mario Draghi said yesterday that while there was a “wide discussion” about interest rates, “the prevailing consensus was to leave the rates unchanged.” The ECB held its benchmark at a record low of 0.75 percent and kept the deposit rate at zero.
The central bank yesterday forecast that the 17-nation euro economy will contract 0.3 percent next year, cutting its estimate from the 0.5 percent growth projected in September. The ECB also forecast that inflation will slow to 1.6 percent next year and 1.4 percent in 2014, well below its 2 percent limit.
“There are clearly problematic developments in the realm of the real economy,” ECB council member Ewald Nowotny said in Vienna today. The ECB’s forecasts underwent “a dramatic deterioration, a significant downward revision to an extent we rarely see,” he said. “There is a multitude countries that will shrink” this year and next and “that’s a significant challenge.”