A European Central Bank rate hike by the end of this year now looks unlikely as financial markets remain volatile and given the US Federal Reserve just sharply lowered its own policy rate, according to a Reuters poll of analysts.
Only 21 of 64 economists now see the bank hiking rates another 25 basis points to 4.25 per cent by December, with the majority, 41, looking for no change and two expecting a cut.
This marked a turn-around from a poll just last week when a narrow majority saw rates reaching 4.25 per cent by end-year.
The change in forecasts comes after the US Federal Reserve surprised markets with a hefty 50 basis point cut in the federal funds rate to 4.75 per cent yesterday, and amid fears that slower US growth could weigh on activity in the euro zone.
Yet a majority of economists say the ECB will only delay until the first quarter a rate hike it has already hinted it would like to deliver. Medians show rates hitting 4.25 per cent by then and sticking there throughout 2008.
ECB policymakers stressed yesterday that inflation was the bank's number one target, which could speed up this year as oil prices hit record highs and food prices rise.
Inflation slipped in August to 1.7 per cent, below the ECB's ceiling, but it is forecast to pick up in coming months.
But a rising euro could put the brakes on a call for a further rate increase this year.
The euro has risen by around 5 per cent against the dollar over the last six months.