Faced with the crisis, the ECB will lower rates again

---

Faced with recession in the euro zone and a sharp slowdown in inflation, the European Central Bank will again lower its rates, and severity of the crisis requires, perhaps even more aggressively than usual . Daily Forex News And Tips / Make Money by Learning
The question is whether the decline will take place Thursday or not at the board meeting of the ECB, held this time in Brussels. But whether the ECB will have the temerity to reduce by 75 basis points its key rate.

In ten years of existence, the ECB has never been more than 50 points. But times are not ordinary.

"In fact, we see no convincing argument against a fall of at least 75 points lower Thursday next," says Holger Schmieding, Bank of America.

"The major economic indicators plunge to record speeds, inflation and unemployment fall back sharply in the euro area", lists there.

The euro area went into recession. Economists and international organizations all predict a contraction of gross domestic product (GDP) of Fifteen of the euro next year.

The job market begins to suffer: the unemployment rate rose to 7.7% in October, its highest level in almost two years.

Meanwhile, the coup brake inflation was spectacular: from 3.2% in October, the rate fell to 2.1% in November, according to Eurostat estimate, mainly due to the collapse of course oil.

Inflation will probably fall below 1% by next spring, said Christoph Weil of Commerzbank, and leaves the ECB to open up the floodgates of credit.

The risk of deflation - of a widespread decline in prices - in the euro area "is much more important than a rebound in prices beyond the ceiling of 2% that the ECB considers consistent with price stability "Adds Jennifer Mc Keown of Capital Economics.

The guardians of the euro have another good reason to strike fast and strong. With the financial crisis and the reluctance of banks to lend to them, the workings of transmission of monetary decisions are seized, stress experts. Clearly, the reduced rates, which generally produce their effect in six months is acting this time with several months of delay.

The ECB has already lowered its key rate twice in the space of a month, first on October 8 as part of a concerted action with its global counterparts, and then early November at its monthly board. 4.25%, it fell to 3.25%.

"We are ready to lower interest rates", recently said its president Jean-Claude Trichet, is keeping to specify the scale. The debate seems far from settled, some officials stressing that it is always good to keep ammunition for the future, which amounts to plead for a decline of 50 basis points.

A month ago, the governors had raised the possibility of a more open rates, but finally opted for 50 basis points, the same day that the Bank of England had demonstrated boldness by reducing its 150 basis points.

Whatever they decide, the gesture to the decline in December will not be the last, say economists in the choir. They believe that the main rate fall between 1.50 and 2% by spring 2009.