Trichet Leaves Door Open for Further Rate Cuts

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Trichet Leaves Door Open for Further Rate Cuts


News Article Date: Tuesday 30th of November 1999

With European Central Bank President Jean-Claude Trichet leaving the door open for further rate cuts on Thursday, economists say the bank's key policy rate could hit another record low as early as April.Earlier in the day, the Governing Council voted to cut the main refinancing rate by 50 basis points, as was widely expected, bringing it to 1.50%. Since October, the ECB has lowered its key interest rate by a total of 275 basis points. Following the announcement, Trichet cited ongoing weakness in global and domestic demand, though he stressed that the council hadn't decided "ex-ante" that rates are presently at their lowest level. "If justified by facts, figures, if some of the risks that I have mentioned are materializing, I don't exclude that the main policy rate could be changed and could go down," Trichet said. Despite Trichet's hints at further easing, ING Wholesale Banking senior economist Carsten Brzeski said the central banker's question and answer session left more questions than answers. "Further rate cuts? Quantitative easing? According to ECB president Trichet ,everything is possible," Brzeski said. However, Brzeski does expect the ECB to cut its rate yet again to a new record low of 1.0%. "After its reflection period, the ECB has done what it had to do," he said. "Not less, but, unfortunately, also not more. As so often in the past, the ECB is not pre-committing itself to anything." With the significant downward revisions to the ECB's staff projections on growth prospects, IHS Global Insight chief economist Howard Archer detected a dovish tone at the press conference and also expects further cuts to come. "Given the ECB's latest comments and staff projections, and given the ongoing stream of generally dire Eurozone data and survey evidence, we expect the ECB to cut interest rates by a further 50 basis points from 1.50% to 1.00% in April," Archer said. "Furthermore, we now lean towards the view that Eurozone interest rates will eventually come down to 0.50% rather than the 1.00% floor that we had previously seen, despite the repeatedly stated reluctance of the ECB to bring interest rates to zero or even below 1.00%." Although the euro largely shrugged off the rate decision, the currency did not react well to the ECB press conference. EUR/GBP hit a session low of 0.88538 GBP during Trichet's remarks, but later recovered some ground, trading modestly below 0.89 GBP. Meanwhile, the euro hit a session low of 1.2481 USD, but also recovered and is trading above 1.25 USD. In fixed income, the yield on the two-year German bond fell from 1.187% to a session low of 1.01% before recovering and settling at 1.14% after the press conference. Bunds also gave up some ground during Trichet's speech, falling from 3.03% to 2.97% before recovering half of its losses and stabilizing at 3.0%. Over the same period, the December Euribor contract rose from 98.535 to an intraday high of 98.646 before paring back all of its gains as Trichet answered the final question for the day House prices fall, leading to a record annual rate of decline, Halifax reveals House prices are falling at the fastest rate on record, figures from Britain's biggest mortgage lender shows. Prices are dropping on average by 94.87 a day - a decline of 17.7 per cent in the past year, according to Halifax. The annual drop, which is based on the group's preferred measure of comparing prices during the previous three months with the same period a year earlier, is the largest since the lender began its records in 1983. The 2.3 per cent drop in February wiped out the 2 per cent rise in January and leaves the average home in the UK now costing 160,327, it said. The figures come on the back of a separate report showing that the credit crisis has triggered property price falls in nearly every housing market across the world, with the UK seeing the second worst fall. Around 81 per cent of countries recorded falls in the value of property in the last three months of 2008, compared with just 27 per cent in 2007, according to estate agents Knight Frank. The group said no market would escape unscathed from the global financial crisis, although the impact would vary according to the housing markets and underlying economies of individual countries. It said house prices fell by 14.7 per cent in the UK during 2008, with 5.1 per cent of the slide coming during the final quarter of the year. Dubai was the strongest performer during 2008, with house prices rising nearly 60 per cent during the year, but much of this gain is expected to be wiped out in 2009. And at the other end of the scale, Latvia saw the steepest price slides, with homes dropping by 16 per cent in the final three months of the year and by 33.5 per cent during 2008. Iceland also suffered badly, with prices falling by 14 per cent during the year, with 11.3 per cent of the slide coming in the final quarter following the collapse of its banking sector. Economists and mortgage experts said UK house prices are likely to continue falling in the coming months. The latest Halifax figures revealed that the average price of a home is now 34,626 lower than a year ago. Martin Ellis, housing economist at Halifax, said: "Continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are likely to mean that 2009 will be another difficult year for the housing market." Melanie Bien, of mortgage brokers Savills Private Finance, said: "There is still more pain to come for home owners and it will be a few more months yet before we hit the bottom of the market."
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