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Nov. 6 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said he can't rule out a further reduction in interest rates after today's half-point cut because the global financial crisis may lead to an extended economic slump.
``The intensification and broadening of the financial turmoil is likely to dampen global and euro-area demand for a rather protracted period,'' Trichet said after reducing the bank's key lending rate to 3.25 percent, the second cut in less than a month. ``Price, cost and wage pressures should also moderate. I don't exclude that we will decrease rates again.''
Central banks around the world are paring borrowing costs as the financial turmoil curbs growth. The Bank of England today unexpectedly lowered its key rate by a third to 3 percent and the Swiss central bank followed with an emergency half-point cut. The euro region's economy is probably already in a recession and will stagnate in 2009, the European Commission said this week.
Economists predict the ECB will continue to reduce borrowing costs at the most aggressive pace in its 10-year history, taking its key rate to 2.5 percent by April.
Investors expected ``more aggressive action'' from the ECB today after the surprise Bank of England and Swiss National Bank decisions, said Aurelio Maccario, chief euro-zone economist at Unicredit MIB in Milan. ``Over the last month, the world has changed but the ECB seems not to have realized it.''
Deeper Cut Considered
Trichet said the ECB's rate-setting Governing Council discussed reducing rates by 75 basis points. ``We were unanimous in thinking a significant decrease in rates was appropriate in the present circumstances,'' he added.
Economic growth in the euro area will slump to just 0.1 percent next year, the worst performance since 1993, the Brussels- based European Commission forecast on Nov. 3. It said the economy, which contracted in the three months through June, will probably continue to shrink in the third and fourth quarters.
The ECB raised rates as recently as July, saying Europe's economic fundamentals were sound and inflation was a bigger threat than weaker growth. Since then, oil prices have more than halved from a peak of $147 a barrel.
Inflation slowed to 3.2 percent in October after reaching a 16-year high of 4 percent in July. The ECB aims to keep the rate below 2 percent. Trichet said there's ``been a regaining of the control of inflation expectations,'' citing the decline in the five-year/five-year breakeven rate.
`Global Action'
The crisis that started with the U.S. housing slump and drove Lehman Brothers into bankruptcy caused the biggest global stock sell-off in 70 years. Banks in Europe remain reluctant to lend to each other even after the ECB flooded them with cash and governments announced rescue packages to prevent banking failures.
The International Monetary Fund today predicted economic contractions in the euro region, the U.S. and Japan next year. ``Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth,'' the IMF said.
Still, lowering interest rates too much risks re-fueling the excessive borrowing that led to today's problems, ECB Executive Board member Lorenzo Bini Smaghi said on Oct 31.
``The present crisis is partially due to interest rates that remained at low levels for too long,'' he said. ``At that time, rates were lowered too much in order to stimulate growth. We need to avoid repeating the same mistakes.''
The Federal Reserve last week cut its benchmark to 1 percent from 1.5 percent and signaled it's ready to take rates to the lowest level on record. China and Japan have also reduced rates, and Australia this week slashed borrowing costs by three quarters of a percentage point.
``The ECB might have looked at the Federal Reserve, which has almost used up all its ammunition,'' said Glenn Marci, an economist at DZ Bank AG in Frankfurt. ``There is definitely room for further rate cuts, maybe already in December, but then probably at a less steep rate.''
To contact the reporter on this story: Christian Vits in Frankfurt at [email protected]
``The intensification and broadening of the financial turmoil is likely to dampen global and euro-area demand for a rather protracted period,'' Trichet said after reducing the bank's key lending rate to 3.25 percent, the second cut in less than a month. ``Price, cost and wage pressures should also moderate. I don't exclude that we will decrease rates again.''
Central banks around the world are paring borrowing costs as the financial turmoil curbs growth. The Bank of England today unexpectedly lowered its key rate by a third to 3 percent and the Swiss central bank followed with an emergency half-point cut. The euro region's economy is probably already in a recession and will stagnate in 2009, the European Commission said this week.
Economists predict the ECB will continue to reduce borrowing costs at the most aggressive pace in its 10-year history, taking its key rate to 2.5 percent by April.
Investors expected ``more aggressive action'' from the ECB today after the surprise Bank of England and Swiss National Bank decisions, said Aurelio Maccario, chief euro-zone economist at Unicredit MIB in Milan. ``Over the last month, the world has changed but the ECB seems not to have realized it.''
Deeper Cut Considered
Trichet said the ECB's rate-setting Governing Council discussed reducing rates by 75 basis points. ``We were unanimous in thinking a significant decrease in rates was appropriate in the present circumstances,'' he added.
Economic growth in the euro area will slump to just 0.1 percent next year, the worst performance since 1993, the Brussels- based European Commission forecast on Nov. 3. It said the economy, which contracted in the three months through June, will probably continue to shrink in the third and fourth quarters.
The ECB raised rates as recently as July, saying Europe's economic fundamentals were sound and inflation was a bigger threat than weaker growth. Since then, oil prices have more than halved from a peak of $147 a barrel.
Inflation slowed to 3.2 percent in October after reaching a 16-year high of 4 percent in July. The ECB aims to keep the rate below 2 percent. Trichet said there's ``been a regaining of the control of inflation expectations,'' citing the decline in the five-year/five-year breakeven rate.
`Global Action'
The crisis that started with the U.S. housing slump and drove Lehman Brothers into bankruptcy caused the biggest global stock sell-off in 70 years. Banks in Europe remain reluctant to lend to each other even after the ECB flooded them with cash and governments announced rescue packages to prevent banking failures.
The International Monetary Fund today predicted economic contractions in the euro region, the U.S. and Japan next year. ``Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth,'' the IMF said.
Still, lowering interest rates too much risks re-fueling the excessive borrowing that led to today's problems, ECB Executive Board member Lorenzo Bini Smaghi said on Oct 31.
``The present crisis is partially due to interest rates that remained at low levels for too long,'' he said. ``At that time, rates were lowered too much in order to stimulate growth. We need to avoid repeating the same mistakes.''
The Federal Reserve last week cut its benchmark to 1 percent from 1.5 percent and signaled it's ready to take rates to the lowest level on record. China and Japan have also reduced rates, and Australia this week slashed borrowing costs by three quarters of a percentage point.
``The ECB might have looked at the Federal Reserve, which has almost used up all its ammunition,'' said Glenn Marci, an economist at DZ Bank AG in Frankfurt. ``There is definitely room for further rate cuts, maybe already in December, but then probably at a less steep rate.''
To contact the reporter on this story: Christian Vits in Frankfurt at [email protected]
Gli industriali si stanno mettendo d'accordo, questo lo dice pure pubblicamente, così gli altri sono avvertiti, e tutti quanti si incassano i maggiori profitti 
