Ben Sills and Gabi Thesing
Monday, Oct 27, 2008
European Central Bank President Jean-Claude Trichet said he may cut interest rates next week, less than a month after slashing the key rate by half a point, as the financial crisis intensifies.
“I consider it possible that the Governing Council would decrease interest rates once again at its next meeting,” on Nov. 6, Trichet said in a speech in Madrid today. “It is not a certainty, it is a possibility.” He declined to comment on how big a November rate reduction might be.
Stock markets tumbled around the world today, extending the worst monthly plunge in 70 years, on concern the financial crisis will develop into a prolonged economic downturn. Europe’s economy is on the brink of a recession, with the region’s manufacturing and service industries contracting at a record pace in October and German business confidence dropping to a five-year low.
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“Given the market stress we’re seeing at the moment, it makes sense to frontload the rate cuts,” said Guillaume Menuet, a senior European economist at Merrill Lynch & Co. in London. “Fifty basis points makes a lot of sense. And we’ll see more.”
The ECB, which raised interest rates as recently as July, joined a globally coordinated rate cut on Oct. 8, reducing its benchmark by half a percentage point, or 50 basis points, to 3.75 percent. Investors expect the ECB to lower the rate by at least another half-point on Nov. 6, Eonia forward contracts show.
Slow to a Crawl
The International Monetary Fund on Oct. 7 predicted growth in the 15 countries sharing the euro would slow to just 0.2 percent next year, the weakest since the single currency began trading in 1999, from 1.3 percent this year.
Financial institutions worldwide have reported $680 billion in losses and writedowns since the U.S. housing slump triggered the credit crisis last year. Lending between commercial banks ran dry after Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15, sending borrowing costs to records.
This article was posted: Monday, October 27, 2008 at 11:09 am