ECB delivers big rate cut

Bloomberg

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Central banks around the world are cutting borrowing costs by unprecedented amounts in a bid to contain the fallout from the financial crisis, which has already pushed the euro region into its worst recession in 15 years. Until yesterday, the ECB had restricted itself to two 50-point cuts, with President Jean-Claude Trichet stressing its role as an "anchor of stability."

"This is better than 50 basis points, but they are still late coming to the party," said Laurent Bilke, an economist at Nomura International in London who used to work as a forecaster at the ECB. "The economy is in deep recession now, so rates should come down as quickly as possible."

Bank of England
The Bank of England cut its key rate by 100 basis points to 2 percent, after last month lopping 150 points off its benchmark. Sweden’s Riksbank sliced 175 points off its main rate, taking it to 2 percent, New Zealand cut by 150 points and Indonesia unexpectedly lowered borrowing costs for the first time in a year. The U.S. Federal Reserve has reduced its key rate by 325 points this year, taking it to 1 percent.

"The ECB tends to be more conservative, with more of a steady-hand policy," said Nick Kounis, chief European economist at Fortis Bank in Amsterdam. "It’s time to step up the pace of rate cuts."

Manufacturing and service industries contracted at the fastest pace on record in November and economic confidence plunged to a 15-year low. With oil prices collapsing, the inflation rate fell the most in almost 20 years last month, to 2.1 percent from 3.2 percent in October.

The International Monetary Fund predicts the euro-region economy will contract 0.5 percent in 2009.

"We’ve seen a significant deterioration in the business environment in the past few weeks and that will require a serious monetary stimulus," said Marc Stocker, director of economics at the BusinessEurope lobby group in Brussels. Still, "the economic slowdown is not over, so it’s important for the ECB to keep its powder dry."