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Will ECB follow Fed's cuts?


Will ECB follow Fed's cuts?


As the Federal Reserve cut interest rates in the US again by a hefty 0.5%, the question is being asked when is the European Central Bank going to follow suit?

Fed chairman Ben Bernanke said the cuts “should help to promote moderate growth over time” but he left the door open to further reductions. The Fed’s action takes its key rate to 3% – the lowest since June 2005. The ECB has left the cost of borrowing in the euro zone at 4% since last summer.

The US cuts were welcomed by Ara Hovnanian, head of one of the kargest homebuilders in the US, who hopes it will help his business: “This is a time to be aggressive. There is a lot of disfunctionality in the market place and it needs stability. The Fed has that power to bring stability and confidence back to the market place.”

The European Central Bank’s President Jean-Claude Trichet does not have the kind of pressing problems as his US counterpart a sharp economic slowdown from a housing slump and a credit crunch.

Trichet and his policy makers also focus much more on keeping inflation under control and their dilemma is that inflation in the euro zone in January hit an all time high of 3.2% – way above the ECB’s target of close to 2%. The ECB would actually like to raise interest rates to target inflation, but fears that would slow the region’s economy.

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