Trichet hints at further interest rate cut at next ECB meeting

MORTGAGE BORROWERS could enjoy a further cut in interest rates next week after European Central Bank (ECB) president Jean-Claude Trichet hinted at the possibility of a rate cut at its meeting on November 6th.

After cutting interest rates by a half-point earlier this month, Mr Trichet indicated that a fresh cut was likely, as weakening economic growth in the euro zone eases inflation fears. "It is not a certainty, it is a possibility," Mr Trichet said in Madrid yesterday. But he declined to comment on the size of any move.

Economists and market analysts have expected that interest rates would be slashed further ever since the ECB, Bank of England and the US Federal Reserve made a co- ordinated cut in interest rates on October 8th.

That rate cut, which brought the ECB base rate down to 3.75 per cent, was the first decrease in euro zone interest rates in more than five years.

It meant that Irish homeowners with typical-sized mortgages saw their monthly repayments fall by €50-€150, as the main lending institutions passed on the rate cut. A further half-point cut would see mortgages shrink by similar sums.

The Federal Reserve is expected to try to spark economic activity by cutting US interest rates by as much as a half point when it meets tomorrow, although it may hold some of its fire if it tries to seek a second transatlantic co-ordinated rate cut with the ECB and other central banks on Thursday week.

The chances of another round of dramatic intervention by central banks increased yesterday as fears that the financial crisis would snowball into a deep global recession swirled around stock markets.

The mass sell-off of equities spread through the time zones, originating from dismal overnight trading in Asia to a rollercoaster ride for European markets, before finally dragging down US markets.

The Irish stock market closed down just over 3 per cent, although it had languished for much of the session at about 4.5 per cent lower than Friday's closing value.

Irish Life Permanent was the biggest casualty. Its share price sank almost 30 per cent - on top of a near 30 per cent fall in Friday's trading - as investors remained nervous about its exposure to debts at Icelandic banks that have been nationalised.

Anglo Irish Bank also suffered from the chilly market sentiment toward the banking sector, plunging 23 per cent.

The share prices of Irish banks, which dominate the Iseq index, are now at levels not seen since the early 1990s, while the overall Iseq index has lost 63 per cent of its value so far in 2008 and is down 74 per cent on its peak in February 2007.

"Clearly there is no sign of this financial market thrill ending soon," said Ulster Bank economist Richard Ramsey.

Reverberations from the financial crisis were felt around the world yesterday. In Europe, major loan packages from the International Monetary Fund (IMF) to prop up the Ukrainian and Hungarian economies failed to ease financial jitters there.

Meanwhile, the group of seven (G7) leading economies issued a joint statement indicating that it was ready to step in to ease the advance of the Japanese yen against the dollar, which is threatening to both hurt the Japanese economy and undermine global financial stability.

As the economic turmoil dented expectations for the future consumption of fuel, the price of crude oil fell to $63 per barrel, its lowest level since May 2007.