Eurozone interest rates cut to 1%

FRANKFURT - THE European Central Bank cut its main interest rate on Thursday for the seventh and probably last time to a record low of 1.0 per cent to boost activity in the slumping 16-nation euro zone.

In London, the Bank of England left its main rate stable at a record low of 0.50 per cent but said it would pump more cash into the feeble British economy.

In Frankfurt, economists wanted to know how the ECB and its president Jean-Claude Trichet can boost bank lending further amid a deep recession.

'Eurozone interest rates might well have reached their trough, but further unconventional policy support should be announced later today,' Capital Economics economist Jennifer McKeown said after the decision was announced.

'After last month's hints that a decision on such measures would be made at this meeting, all eyes will be on president Trichet' at a press briefing 'to see just how bold (or not) the bank will be,' she added.

The decrease of 0.25 percentage points made for a combined cut of 3.25 points since early October to the lowest level in the bank's more than 10-year history.

In London, the Bank of England said it would pump out another 50 billion pounds (S$110.6 billion) of new money into the economy as Britain battled its own recession.

Other central banks cut interest rates in the Czech Republic and Iceland, following decreases on Wednesday by peers in Norway and Romania.

Eurozone economists turned quickly to what Mr Trichet might announce within a framework of so-called quantitative easing.

QE amounts to a central bank creating money to buy government or corporate debt with the goal of easing a dogged credit squeeze and spurring growth. The measure most likely to be announced is an extension of the ECB's unlimited cash loans to commercial banks beyond the current limit of six months, to nine or 12.

An expanded range of collateral accepted in exchange for ECB funds is another move mooted by many, but UBS economist Stephane Deo said such measures 'represent more of a prolongation of the past strategy than a step change.' Mr Trichet could also tell markets the new low rate will be maintained for some time, which would mark a sharp departure from previous refusals to 'pre-commit' on rate policy.

Tate Properties Tenerife.