ECB worryingly cautious

President Trichet’s continued insistence that the next “important” monetary policy meeting will not be until March has more or less ruled out an interest rate cut this month. We still think that weak activity and the prospect of a sustained period of below target inflation will eventually force the Bank to cut interest rates to very near zero, if not all the way. But the Bank might struggle to implement non-conventional policy to reduce longer-term interest rates after that.