Rate cuts not expected in Europe

The European Central Bank will resist cutting interest rates this year as it grapples with the fastest inflation in its 10-year history and a cooling economy, a survey of economists shows.

Policymakers, who meet Thursday, will keep the benchmark lending rate at 4% until at least February, according to the median of 31 forecasts in a Bloomberg survey. A month ago, economists predicted the bank would lower borrowing costs in September to bolster the economy.

“Inflation is the biggest threat to economic growth at the moment,” said Holger Schmieding, chief European economist at Bank of America Corp. in London. “Whatever rate-cut hopes investors might have had, they were derailed by the new spike in oil prices.”

The bank -- which aims to keep inflation just below 2% -- is celebrating its 10th anniversary. A surge in oil to a record $135 a barrel pushed inflation to 3.6% in May, the fastest the central bank has faced since its inception June 1, 1998.

Bank President Jean-Claude Trichet may focus on the success of the euro, the currency now shared by 15 European nations, when he hosts euro-region finance ministers and German Chancellor Angela Merkel in Frankfurt today.

Trichet has said that the European Central Bank, charged with protecting the euro against the ravages of inflation, only narrowly missed its goal during its first 10 years despite several “price shocks,” and has succeeded in keeping inflation expectations in check.

Still, price expectations, as measured by French inflation-indexed bonds, rose to 2.46% last week from around 2.1% two months ago. In a bulletin published last week to mark the anniversary, the bank acknowledged there were signs that expectations were “trending up.”

The bank, which predicted inflation of about 2.9% this year, will publish new economic forecasts after its meeting.