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ECB cuts rates by record 75 bps to 2.5 pct

FRANKFURT - The European Central Bank cut interest rates a record 75 basis points to 2.50 percent on Thursday, a bigger move than economists had forecast but in line with the expecations of financial market traders. It is the biggest cut in the ECB's 10-year existence and is a step up from the two 50 basis point cuts made since October.

It also suggests a change in tack by the bank despite recent comments from top officials that bumper cuts would serve little purpose and could spark fear in financial markets.

Before the decision, opinions had been split on how far the ECB would cut rate, between those who thought it would stick to a tried-and-tested 50 basis point cut and those who thought it would cut by a record 75 basis points or more. "They are now taking bolder decisions and this reflects a shift in perception in the ECB," said Bank of America economist Gilles Moec." "The recognition that we are not in ordinary times, and that this is not an ordinary recession probably goes in right direction to boost the real economy and credit markets." Two thirds of analysts had expected a 50 basis point move but a significant minority, 24 of the 81 polled by Reuters, expected more. Financial market traders, who usually bet on faster and more agressive moves, were also expecting a 75 basis point cut. The euro trimmed losses against the U.S. dollar after the decision and Bund futures turned negative. The cut followed a steady flow of dire economic data over the last two weeks and after aggressive rate cuts by central banks in Britain, Sweden and New Zealand earlier in the day. "It is encouraging but I would still argue they should have acted in a even bolder way," said UniCredit Cheif Economist Marco Annunziata.

"At least doing 75 and moving in the direction of market expectation and it is an encouraging sign that the ECB is realising that the crisis is serious and it requires a policy response which is more flexible and more decisive than the usual measured pace of 50 basis points." ECB President Jean-Claude Trichet, will hold a news conference at 1330 GMT to explain the decision and will also give details of new staff forecasts for the euro zone economy.They are expected to confirm that the euro zone economy is in serious trouble. Before the rate decision some analysts had thought the figures may have swayed the normally cautious Governing Council to act boldly with rates.

 

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