Eurozone official interest rates are almost certain to be slashed again next week by at least half a percentage point after a survey on Thursday showed the region facing its worst downturn since the recession of the early 1990s.
Economic confidence in the 15-country region crashed this month to its lowest point since August 1993, the European Commission reported. With inflation also falling rapidly, the European Central Bank has not sought to stop financial markets assuming its main interest rate will be cut next Thursday from 3.25 per cent to 2.75 per cent or below reports the Financial Times.
Public ECB comments show the bank remains cautious about the pace of cuts, pointing to a half-point reduction next week – the same as in October and this month. But economic news has been consistently gloomier than expected, strengthening the case for a larger cut.
The ECB is unlikely to go as far as the Swiss central bank, which slashed its target interest rate by a full percentage point last week, let alone the 1.5 percentage point cut by the Bank of England. But 75 basis points seems a distinct possibility.
The size of next week’s ECB rate cut will depend on how it expects the eurozone to perform in the next few months. The ECB will be hesitant in predicting any turnround, while its “risk management” assessment could conclude faster rate cuts are needed.
Governing council members have expressed concern that rate cuts will be less effective in kick-starting growth than in the past.
Read more here: Eurozone set for rate cut of at least 50 points