With no let-up in market turmoil in sight, analysts say a coordinated interest rate cut by the European Central Bank, the Bank of England and the U.S. Federal Reserve is becoming more and more likely as a way to help revive lending between the world's banks.
The world's major central banks have been offering almost constant cash injections to jittery markets over recent weeks to keep the financial system afloat. European banks offered more than US$74 billion on Monday alone.
Luca Cazzulani, a strategist with UniCredit in Milan, said that has not been enough to address the key problem of wary banks' reluctance to lend to anyone _ including each other.
"I think at this point (a coordinated cut is) quite likely with the current spread of problems at full strength on the European financial system," Cazzulani said.
Cazzulani said a coordinated move should be made as soon as possible and he could envision each bank dropping rates by a quarter of a percentage point. That would bring the ECB down to 4 percent, the Bank of England down to 4.75 percent and the Fed to 1.75 percent.
Any joint action on interest rates would be the first since the ECB and the Fed moved together to cut rates following the September 11, 2001 terrorist attacks on New York and Washington, he said.
Howard Archer, an economist with Global Insight in London, said a coordinated effort could do a lot for sentiment. He said such a cut is not his "central scenario" as he looks ahead to a Bank of England rate decision scheduled on Thursday, but he did not rule out other banks joining in.
"Things seem to be getting worse. The longer this happens, the greater the chances" of a coordinated cut, he said.
Archer said he expects the Bank of England to lower its benchmark rate by a half percentage point to 4.5 percent from 5 percent Thursday _ and not before then _ whether in coordination with other banks or not.
The ECB left rates unchanged at the regular monthly meeting of its governing council last Thursday, although bank President Jean-Claude Trichet delivered a somber assessment that euro zone growth is slipping _ leading analysts to predict that a rate cut was on its way.
Trichet said then that the bank had discussed the possibility of cutting rates before deciding to hold them.
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On the Net:
http://www.ecb.int
http://www.boe.co.uk
http://www.federalreserve.gov
