Portugal joined Ireland yesterday in keeping the European rate cut bandwagon rolling, following a similar move by Spain earlier in the week.
The Bank of Portugal said it lowered its repurchase pact rate, which sets the tone for short-term money, to 4 per cent from 4.5 per cent, in its largest single cut of the past three years.
Spain and Portugal - along with Ireland - are due to join the euro from the start of next year, but their domestic interest rates are still above those of "core" European states, such as Germany.
The German rate is widely seen as the maximum starting level for a euro zone money market rate to be set by the European Central Bank (ECB), which will take over the running of monetary policy for the 11 member countries from the single currency's launch on January 1st.
But in Italy, also scheduled to join the single currency and where the key discount rate currently stands at 5.00 per cent, the immediate interest rate outlook has been complicated by the fall of the government.
The Portuguese cut leaves the central bank with just 0.7 of a percentage point more to cut before January 1st, if the ECB starting repo rate is at the expected level. Irish rates must fall by a further 1.6 points.
But as fears mount that the world is teetering on the brink of recession and with the dollar tumbling, pressure is mounting on Germany and France to consider rate cuts this year to ensure that the euro is not too strong when it is launched.
