After much hesitation and intense pressure, the European Central Bank is widely expected to cut interest rates this week,” writes Thomas Sims in today’s Wall Street Journal.

“A key ECB official, Eugenio Domingo Solans, helped intensify speculation about a rate cut by saying Monday that the central bank is adapting monetary policy to the slowing economy. Chances of a rate cut also increased after euro-zone inflation dropped again.”

“Mr. Solans, an ECB executive board member, said on Spanish television that the ECB prioritizes inflation but isn’t ‘ignoring that there is an economic slowdown here that translates into better inflation expectations and that also has to have — of course is having — its response in interest rates.’ “

“Inflation in the 12 nations that share the euro eased for a fifth consecutive month in October, to an annual rate of 2.4%, down from 2.5% in September, according to a preliminary reading by the European Union’s statistics office. The deceleration brings the pace of inflation a full percentage point below May’s peak and to the lowest level since January. The ECB is convinced inflation will drop early next year below the bank’s upper limit of 2% — a level last seen 17 months ago. Lower energy prices were mainly behind the fall.”

“Pedro Solbes, European Union monetary affairs commissioner who attends ECB council meetings as an observer, welcomed the inflation slowdown and said it gives the ECB room to act. ‘If inflation goes down … the margins of maneuver for the [central] bank increase too,’ Mr. Solbes told reporters in Brussels.”

“Recent statements by ECB officials, the continuing decline in inflation, and, perhaps more than anything else, unexpectedly bad economic news have made economists nearly unanimous in their belief that the ECB is set to trim its key rate, which stands at 3.75%, for a fourth time this year when it meets at Thursday’s council meeting. Economists, however, disagree over the size of the cut.”