ECB Considers Further Rate Cuts

European Central Bank Governing Council member Nout Wellink said the bank can make additional cuts to its benchmark rate and is considering other measures to spur lending and boost the economy.
“There is some room for lowering the interest rate,” Wellink, who also heads the Dutch central bank, said in an interview after a lecture in Leiden, The Netherlands, late yesterday. “There is also room for other measures, on which we will decide soon,” he said, declining to specify what action the bank might take.

The ECB this month cut its key interest rate by a quarter point to 1.25 percent, less than economists forecast, and delayed a decision on new tools until May. The Federal Reserve, Bank of England and Bank of Japan are already pumping money into their economies by buying government and corporate debt.
“The financial sector hasn’t calmed yet, and a healthy and stable financial sector is a crucial condition for growth recovery of incomes and employment,” Wellink said in the lecture.

The eurozone economy may shrink 4.1 percent this year, the Organization for Economic Cooperation and Development has forecast. The widening recession increases the pressure on the ECB to use new ways to stimulate the economy as consumers and companies curb spending and halt investments.
The deepening of the global slump and a drop of more than 60 percent in oil prices from a July record have eased inflation pressures across the euro area. “Consumers are less willing to spend, making it harder for companies to raise prices,” said Charles Kalshoven, an economist at ING Groep NV in Amsterdam, yesterday.

“For the euro zone, it can’t be ruled out that in 2009 months of negative price rises will occur,” Wellink said in the lecture. “As long as consumers and producers don’t continuously postpone their expenditures as a result of this, this is not a problem.”