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ECB's Trichet: Rate cut next month a possibility

ECB's Trichet: Rate cut next month a possibility

The European Central Bank appears poised to cut interest rates for a second month in a row after President Jean-Claude Trichet said Monday there was "a possibility" of such a move as inflation ebbs in the euro zone.
"I consider it possible that the Governing Council would decrease interest rates once again at its next meeting," Trichet said in a speech in the Spanish capital.
"New information is likely to indicate a further alleviation to upside risks to inflation in the medium term," Trichet added, a nod to inflation and the specter of slowing growth enveloping the 15-nation bloc of 320 million people that accounts for more than 15 percent of the world's gross domestic product.
Trichet's remark also comes ahead of a two-day meeting by the U.S. Federal Reserve Bank that starts Tuesday in Washington.
Policymakers there are widely expected to lower the central bank's key interest rate from 1.5 percent at the conclusion of a two-day meeting Wednesday _ their last session before the November elections.
Investors and some economists predict the Fed will drop the rate by half a percentage point to 1 percent. If that happens, it would mark the lowest rate since the summer of 2004. Others, however, think the rate will be cut by a quarter-point to 1.25 percent.
Investors, analysts, politicians _ even consumers _ have been looking for rate cuts from the world's major central banks as a way to stem some of the volatility that has seen markets oscillate wildly.
European stock markets fell heavily Monday after the Nikkei index in Japan closed at its lowest in 26 years as the financial crisis raised recession fears and drove up the yen, piling the pressure on the country's exporters.
Tokyo's Nikkei 225 index closed down 6.4 percent to 7,162.90 _ the lowest since October 1982.
The losses came despite a report that the government was considering massive capital injection into struggling banks in a bid to calm jittery financial markets.
Benchmarks in Britain, Germany and France were trading down more than 4 percent. The FTSE 100 index was 190.97 points, or 4.9 percent, lower at 3,693.39 while Germany's DAX was down 200.24 points, or 4.7 percent, at 4,095.43.
France's CAC-40 was the worst performing European index, down 216.34 points, or 6.8 percent, at 2,977.45, with car manufacturers heavily sold off after gloomy updates last week.
Trichet was quick to warn that any rate cut was not set in stone and not yet decided upon.
"It is not a certainty, it is a possibility," he said. But his admission sparked intense interest given his typical tight-lipped attitude about bank moves. The bank last cut its interest to 3.75 percent on Oct. 8, part of a joint move with other central banks aimed at restoring some semblance of calm to global markets pocked with fear and concern over the financial meltdown.
"For a central banker, this is an unsually clear statement," said Michael Schubert, an analyst at Commerzbank in Frankfurt. He said the bank is likely to lower its benchmark rate to 3.25 percent when it meets on Nov. 6.
Trichet, for his part, offered some conditions though.
"All our decisions are inspired by this fundamental primary objective: price stability. Any new monetary policy stance that we could decide on at our next regular monetary policy meeting must continue to allow us to tell our 320 million fellow citizens, 'you can be confident,'" he told a luncheon of business leaders.
Trichet said that diminishing pressure from inflation, currently at 3.6 percent in the euro zone, was not as great as it was.
He also said that the picture for growth did "not offer a completely reassuring picture."
Trichet said the global crisis marked "a period of intense turbulences which correspond to a very significant market correction at a global level."


Updated : 2021-05-13 01:27 GMT+08:00