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| Nowotny claims ECB base rate cut a one-off |
| ECB, 20.10.2008 |
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| The chief of the Austrian central bank Ewald Nowotny has said that today's EU interest-rate cut should not be viewed as the first in a series.
Nowotny, who is also a council member of the European Central Bank, said on Thursday the ECB's new benchmark rate of 3.75 percent "will ensure that inflation expectations remain anchored," adding, "Today's move should not be seen as a first step in a possible series. The situation has to be assessed as we go along."
"Inflation, but also growth prospects, have come down significantly, and that allowed central banks to carry out this coordinated action," Nowotny said. "This should send a clear signal to market participants and help calm markets."
The ECB unexpectedly cut its main lending rate from 4.25 percent in coordination with other central banks today after the global credit crunch pushed up borrowing costs and forced governments across Europe to bail out banks. The International Monetary Fund said the global economy is heading for a recession in 2009 and yesterday increased its estimate of losses from the crisis to $1.4 trillion.
The rate cut sends "a strong message, but more importantly it is symbolic because it shows coordination of effort," ECB council member Michael Bonello said in a telephone interview from Valletta, Malta. "Governments are doing their part, as are central banks."
The U.S. Federal Reserve also reduced its key rate by half a point, to 1.5 percent, and central banks in Canada, the U.K., Sweden and Switzerland lowered borrowing costs. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent.
"It's a helpful step, but there's a lot more work to be done," said Lawrence Hatheway, an economist at UBS in London. "It should be seen, and surely the markets will view it this way, as the first in a series of steps for these institutions."
The worldwide turmoil is hurting the economy of the 15 euro nations. Europe's manufacturing and service industries contracted for a fourth month in September, and confidence in the economic outlook dropped to the lowest level since the the 11 September 2001 terrorist attacks on the USA.
David Rogers
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