ECB hints at cuts as money market strains worsen
The European Central Bank on Thursday signaled it might cut interest rates for the first time in five years as credit strains paralyzed money markets.
Interbank lending rates extended their upward march, reflecting tightness in credit markets, while a sharp fall-off in U.S. commercial paper issuance indicated businesses were having an extremely difficult time raising short-term capital.
ECB President Jean-Claude Trichet, speaking after the central bank left rates unchanged, highlighted further risks to the European economy from the credit crunch, suggesting the once inflation-leery official was warming to the idea of bringing rates down from the current 4.25 percent.
Trichet said ECB policy-makers recognized “the extraordinary high level of uncertainty stemming from latest developments” on turbulent financial markets and the credit crunch. “Economic activity in the euro area is weakening with contracting domestic demand and tighter financing conditions,” he said.
“The ECB is adopting a substantially softer tone, which opens the door for a future interest rate cut,” said Howard Archer, chief European economist at Global Insight.
The Wall Street Journal reported that U.S faxless payday advance. Federal Reserve officials are weighing further interest rate cuts, even if Congress approves a $700 billion financial industry bailout, because of a worsening economic outlook.
A rate cut is still far from certain, partly because of inflation worries, the WSJ said in an unsourced report on its website.
The change in the ECB’s tone reflected a rapid deterioration in the global credit situation. The year-long crisis has seen the downfall of such staple corporate names as Lehman Brothers and AIG, and bank failures have become frequent.