ECB expected to announce sharp rate cut
ELITSA VUCHEVA
04.12.2008 @ 09:25 CET
The European Central Bank (ECB) is expected to cut interest rates on Thursday (4 December) for the third time since October, amidst growing trouble for the eurozone economy.
Most analysts say they expected the bank to cut the key borrowing cost in the 15-strong euro area by 50 basis points to 2.75 percent, according both the Reuters and Bloomberg news agencies, but many foresee a 75 and some even a 100 basis point cut today at a meeting in Brussels.
The ECB is expected to cut its interest rates for the third time in less than two months. (Photo: European Commission)
The Frankfurt-based ECB cut its benchmark lending rate for the first time in five years in October, from 4.25 percent to 3.75 percent, and a second cut to 3.25 percent followed in November due to the increasingly gloomy outlook for the bloc's economy.
French finance minister Christine Lagarde, who had called the bank's previous cut "clearly insufficient," will also sit in on the Thursday meeting, according to Reuters something which could irritate some of the ECB board members, as the bank strongly insists on its independence from government oversight.
But with the 15-member eurozone diving deeper into recession and EU capitals reflecting on how much money to pump into their economies, pressure has been increasing on the ECB to deliver an appropriate response to the situation.
"The [ECB] Governing Council will have the benefit of a full update of its growth and inflation forecasts, which will almost certainly show sharp downward revisions," Nick Kounis, chief European economist at Fortis bank, was quoted as saying by Reuters.
"Members will not have to exercise caution because of a sense that they are shooting in the dark ... we think that it [the ECB] is more flexible than commonly perceived and will cut rates by a record 75 basis points because the data justify at least that amount," he added.
The ECB's benchmark is today still the highest among the Group of Seven most industrialised nations (G7).
Despite its two previous cuts, the US Federal Reserve, the Bank of England and the Swiss National Bank have all cut by more, with the Bank of England also expected to announce further cuts today, possibly to two percent the lowest since 1951, Bloomberg reports.
Meanwhile, the Swedish and Japanese central banks have both called unscheduled meetings for this week.