With economic growth slowing, inflation falling, markets jittery and confidence vulnerable to any more bad news on terrorism, European interest rates need to be be cut again.

Wim Duisenberg's main reason for holding back on Thursday was misguided. The president of the European Central Bank said that a further move after the 0.5 percentage point cut on September 19 to 3.75 per cent might not have encouraged stability.

But, as the markets widely expect, the ECB can hardly avoid cutting its rates again soon. One obvious reason is that the eurozone inflation rate is falling fast from a peak of 3.4 per cent in May. It was down to 2.7 per cent in August and may well be below 1.5 per cent next year. In that case short-term interest rates would need to fall substantially to stay the same in real terms.

Against that background, a further quarter-point cut would have represented only a modest easing of policy, even though the ECB has reduced interest rates by a full percentage point since May.

Another cut is amply justified by the steady stream of poor economic news recently. Recession in the manufacturing sector is now showing signs of spreading to service industries. Growth next year is likely to be well below the eurozone's capacity to expand - and the prospects for recovery are receding. For these reasons, the markets expect cuts of perhaps 0.75 percentage points by early next year.

The fires of economic growth are dying down all over the developed world, so exports cannot be expected to lead the eurozone back to prosperity. The domestic economies must therefore be stimulated. Interest rate cuts may be an uncertain way to achieve this but, as Mr Duisenberg suggested, monetary easing would be preferable at this stage to further fiscal loosening.

Since the dangers to growth are more immediate than the threat of inflation, it would be better to move early and decisively, as the US Federal Reserve has done. Cuts now could be reversed if recovery started earlier than expected.

By holding back, the ECB hoped to show a steady hand and a confidence in the future that would be transmitted to the markets and to consumers. But playing psychological poker is not the ECB's forte. The euro's first response to the announcement was to weaken. More generally, a policy of tactical inaction is as likely to shake confidence as to strengthen it.

After the September 11 atrocity, the ECB made the right move at the right time, in concert with the Fed. In the face of continued economic weakness, it should be prepared, at its next meeting, to return to that decisive stance.