Thursday, 4th December 2008 - 13:52CET
ECB cuts rates as recession bites
The European Central Bank cut interest rates by 75 basis points today, its biggest ever move as inflation plummets and the euro zone economy sinks deeper into recession.
The move takes the ECB's main refinancing rate to 2.5 percent, its lowest in nearly two-and-a-half years and marks the third cut in barely two months amidst signs that the financial crisis is biting hard into the real economy.
The majority of economists had expected a smaller, 50 basis point cut although a significant minority forecast a bigger move. Financial markets had priced in a 75 basis points reduction.
Other central banks have taken even more aggressive moves, with the Swedish central bank cutting by a record 175 basis points while the Bank of England cut rates by 100 basis points to two percent, their lowest level since 1951.
ECB President Jean-Claude Trichet is expected to justify the rate cut by pointing to the diminishing upside risks to inflation, which fell to 2.1 percent in November, and a contraction in domestic demand as well as tighter financing conditions. He will also unveil new staff economic forecasts.
The ECB also cut the rates on its overnight facilities by 75 basis points. Funds borrowed from its marginal lending facility would now attract an interest rate of three percent and overnight deposits will pay two percent.
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Of course, they should pass all the cut; they pass all the increase when there is an increase. Ask people who have mortgages.
Dear friends, it doe not mean that if the ECB cuts its interest rates, they would have to reflect to our Banks (BOV, HSBC & APS) lowering their rates as well, by the same percentage point! "
When the ECB raised the interest rates ALL the local Bank raised there rates on the next working day !!!! So yes they should lower there rates IMMEDIATELY
Why not, my dear! If they don't they will be exchanging an intended benefit to the end consumer into their own profits! Is this right?
now look at whats happening in uk both lloyds and rbs declared that they will be passing on the rate cut to their customers folloiwng the regulators and the govts pressure
good luck guys
please note that BOV did "lower its refinancing rate by 50 basis points" on the 14th November 2008...
http://www.bov.com/page.asp?n=newsdetails&nwsid=483&i=9075
I agree, local banks cut rates significant;y later than the ECB announcement and in cases by less than the amount specified. This is unfair for the people holding mortgages and prevents the macroeconomic goal of the policy makers from being fulfilled.