ECB making slow progress

Given the latest sharp fall in inflation and mounting evidence that the euro-zone economy is in the midst of a severe downturn, we see the ECB cutting interest rates by 50bp this month. Indeed, as it becomes clear that the recession will be worse than the ECB currently expects, we think that interest rates will fall more or less to zero later this year. Admittedly, though, the Bank’s cautious stance so far suggests that it will take longer to get there than other major central banks.