"Asia Pacific" ECB Cannot Resist Zero Rate Pressure.

Sources close to Asia Pacific say the firm is expecting ECB president, Jean-Claude Trichet, to bow to pressure to emulate the zero interest rate policies being pursued by the world’s major central banks much to his chagrin. Mr. Trichet is particularly averse to the policy based on his doubts that it does little to free up credit and much more to fan the flames of future inflation. One of the Asia Pacific sources said that the Asian-based firm is largely in agreement with Mr. Trichet’s assessment but expects that he will be painted into a corner by political pressure. A number of analysts, including those at Asia Pacific, believe that accelerating job losses and dwindling investment may shrink the economy of the 16 nations that share the euro by 2.5 percent this year and that this alone may be enough to spur more aggressive rate cuts from the ECB.   Asia Pacific analysts maintain that although inflationary pressures are subsiding at a heady pace, the deflation that many commentators allude to in their forecasting is illusory and that the unprecedented monetary stimulus will inevitably make its way into the mainstream money supply.

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