Deflation is now a fear for ECB president Wim Duisenberg

The ECB's key rate has been at 2.5% since March, and calls for a cut have been growing louder in recent weeks.

Although the ECB has repeatedly insisted that its role is not to stimulate economic growth in Europe, the combination of sluggish economic performance and a strong euro are combining almost to eliminate inflation.

The only question is whether the ECB will cut rates by a quarter or a half-point; most economists predict the deeper cut is the more likely.

Currency climbs

The key difference between this and most previous ECB rate decisions is the persistent strength of the euro.

The single currency has hit a series of record highs against the dollar, pound and yen, and shows no sign of cooling off.

The strong euro makes European imports cheaper and exports more expensive, and is believed to be a possible herald of debilitating deflation in the eurozone.

At the same time, the eurozone economy is at its slowest for years, with Germany effectively in recession.

Eurozone growth is predicted by the ECB to be 1% this year, and inflation should be no more than 2% in 2003 and 1.5% in 2004.

Chorus of complaint

The case for a eurozone rate cut has been made repeatedly by political and economic leaders.

US and European officials have put pressure on the ECB to cut rates, fearing that the strength of the euro is upsetting the equilibrium of world markets.

Many European manufacturers have found the strength of the currency has eroded their international competitiveness.