The European Central Bank will keep interest rates unchanged at tomorrow's governing council meeting, but the ECB is expected to start cutting rates in the second quarter, according to a poll of economists.

All of the 30 economists polled by Thomson Financial News and Agence France-Presse said they expected the ECB to keep its main refinancing rate at 4pc.

Most expect that the slowdown in eurozone growth will force the central bank to start cutting rates in the months ahead, following ECB president Jean-Claude Trichet's acknowledgement of risks to the growth outlook at the central bank's February 7 news conference.

"Latest data and survey evidence indicate that the activity is struggling early in 2008," said Howard Archer of Global Insight. "Markedly softer eurozone growth and a strong euro are expected to lead the ECB to start cutting interest rates by mid-2008."

But continuing inflation worries are making the ECB reluctant to consider cutting rates just yet. Eurozone inflation reached 3.2pc in January, the highest rate recorded since the launch of the euro, and the central bank is keen to ensure that this does not lead to inflationary wage deals.

Bundesbank president Axel Weber said recently that market expectations for interest rate cuts "clearly underestimate" eurozone inflation risks and are out of line with the ECB's thinking.

The Irish Independent, 05 March 2008