Little more than two weeks after it slashed its main policy rate by half a percentage point to 3.75 per cent as part of co-ordinated global central bank action, policymakers at the notoriously inflation sensitive ECB are making bolder signals that further reductions are possible.
Evidence of slower growth and falling price pressures was “a new element of our analysis”, José Manuel González-Páramo, an ECB executive board member, told an Irish newspaper yesterday. The ECB could “diminish rates without adding to inflationary risks in the medium term”, he said.
With Sweden's Riksbank slashing its main rate by a half percentage point yesterday, and the Bank of England and US Federal Reserve also expected to lower borrowing costs in coming weeks, financial markets see a greater than 50 per cent chance of a half percentage point cut at the ECB's November 6 interest rate setting. So far, Jean-Claude Trichet, president, has not acted to correct such expectations, although he could if he felt markets were misjudging the bank's likely actions.
