Europe Follows Bank of England In Cutting Rates

LONDON, Nov. 6 -- Central banks across Europe slashed interest rates Thursday, expanding a campaign to head off a deep recession and following in the path their U.S. counterparts have undertaken for more than a year.

The central banks, deeply worried about inflation and confident that U.S. economic distress wouldn't damage Europe too badly, resisted cutting interest rates for most of this year. In the past two months, however, the outlook for economies there and globally has worsened significantly. Just Thursday, the International Monetary Fund cut its projection of 2009 world economic growth to a level that would indicate a global recession.

The Bank of England, citing "a very marked deterioration in the outlook for economic activity at home and abroad," on Thursday cut the bank lending rate it controls to 3 percent, the lowest level since 1955. The 1.5 percentage point rate cut was the largest reduction since 1981.

Shortly after the move in London, the European Central Bank slashed rates a half-point, to 3.25 percent, for the 15 nations that use the euro as their currency. The Swiss National Bank cut interest rates by a half-point to 2 percent and the Czech Republic's central bank cut its interest rate by three-quarters of a point to 2.75 percent.

Jean-Claude Trichet, president of the European Central Bank, said he did not "exclude that we will decrease rates again."

"The intensification and broadening of the financial turmoil is likely to dampen global and euro-area demand for a rather protracted period," he said.

The moves in Europe were followed Friday by South Korea's central bank, which lowered its benchmark rate by a quarter-point to 4 percent, its third rate cut in less than a month, Associated Press reported.

Thursday's moves followed an emergency rate cut coordinated with the Federal Reserve just three weeks ago. The Fed has slashed the short-term interest rate it controls to 1 percent, from 5.25 percent in September 2007.

All the central banks are hoping that by making it cheaper for businesses and consumers to borrow money, they can encourage economic activity and ease some of the risk of a long and crippling downturn in their respective nations.

Their efforts are being hindered, though, by dysfunction in the world financial system. With banks unwilling to lend to each other or to their clients, interest rate cuts are not being passed through to ordinary borrowers as they normally would, limiting their effectiveness.

Still, economists praised the actions.

"It's an extremely important signal," said Christopher Allsopp, an Oxford University economist who served on the Bank of England's Monetary Policy Committee. "They were slow to get off the pot, but this shows they have woken up."