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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Peter Murray
Dec 4th 2008, 18:04
The ECB can do what they like it but it has no powers of enforcement or ability to ensure this reduction is appled in full,with immediate effect or at all.So much for the power of the Euro as in the UK the rates are a full half a base point less than in the other EU member states.
mark sant
Dec 4th 2008, 16:54
some european banks offer morgage rates at approximately 1 percent above the 3 month interbank lending rate.these rates are decreasing however unfortunately not as yet as signifcantly as the ecb base rates.However we are now in the right direction
lgalea
Dec 4th 2008, 16:35
M Borg
Want a bet?
John Inguanez
Dec 4th 2008, 16:34
@M.Borg
Of course, they should pass all the cut; they pass all the increase when there is an increase. Ask people who have mortgages.
anthony cassar
Dec 4th 2008, 16:05
"M Borg
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
Keith Fenech
Dec 4th 2008, 15:17
@M. Borg
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?
Graziella Dalli
Dec 4th 2008, 15:06
Yeah, I hope APS too lowers the lan rate since last time it didn't.
B Sant
Dec 4th 2008, 15:03
did u hear trichet mention the euribor rates?.... but you will hear the banks mention them soon to create their own base rate
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
Andrew Spiteri
Dec 4th 2008, 14:47
@ Hurdle
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
M Borg
Dec 4th 2008, 14:45
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!
Simon Borg
Dec 4th 2008, 14:30
@John, Sharon
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.
John Inguanez
Dec 4th 2008, 14:04
Let's all hope that the decrease in rate be passed fully to the consumer by the local banks, so that it goes again into the economy, alleviate those with mortgages.
Sharon Hurdle
Dec 4th 2008, 14:00
When will BOV lower its mortgage rate? It didn't after the last cut