Trichet Reduce Benchmark to 1.25% and Adds that Non-Standard Methods Will be Revealed in the Upcoming Month…

The decision is out, the European Central Bank decided on Thursday 2nd of April to reduce their benchmark down to 1.25% reaching a record low, contradicting market projections where they expected a wider cut to take place today. However, it did not stop as the main benchmark, the central decided to reduce their deposit rates down to 0.25% and the lending rates down to 2.25%.

Unexpected decision, Trichet had maintained a conservative behavior where until now and after all the disasters took place in his sixteen economies believe that slashing rates vastly will weaken the central bank position because they will longer have enough space to maneuver, especially the benchmark is considered the main tool used by central banks across the globe.

This is the sixth rate cut taken by the Trichet and his committee since the Credit Crisis intensified when Lehman Brother shocked markets when they filed for bankruptcy saying they are out of liquidity and can no longer continue. The euro nations needed those cuts in particular when their GDP reading began to contract slightly heading to deeper contraction where market participants foresee a wider retraction in the first three months of the current year.

The reduction included the deposit rates reaching down to 0.25% and the lending rates reaching to 2.25%, Trichet had to reduce the lending rates even after he had to hike those rates in particular when banks across the zone depended mainly on the money taken from the central bank other than giving each other.

The chairman, wants to increase the levels of liquidity in markets as it's considered the only solution for the time being before considering any other drastic measures such as quantitative easing, where he will be obligated sooner or later get involved in such actions especially the Untied States and the United Kingdom took those started buying long-term debts.

Forty-five minutes after the decision was out, Trichet came out to comment on why he decided to reduce only 25 basis points to the lowest since the World War II opposing market expectations. Trichet said the committee had to cut those rates because the euro nation's economies remain very weak through out 2009 where a gradual recovery will be seen in the beginning of 2010.

On Inflation Trichet added, "Price pressures will remain subdued" which clarifies the high risk the zone is facing is called disinflation but which under high risk of altering into deflation even after Trichet had denied any expectations of negative prices.

However, Trichet had changed his tone this month adding comment such as those key rates are not considered the lowest limit opening the door from further rates cuts in the upcoming months, alongside he mentioned that deposit rates won't be reduced to lower levels as they stand at 0.25%.

Looks like the increasing pressures in markets after the economies started to purchase long-term debts obligated Trichet to say, "The ECB deciding on new non-standard measures will take place in the upcoming month", satisfied by those comments refusing to add any further comments on this matter.

Dear reader this is not the end, more rates are about to come in the upcoming period but considering the speech I don't think a cut more than 25 basis points will take place because the spread between the deposit and benchmark rates will be narrow.

The rate decision and the G20 meeting boosted indices, where Dow Jones euro stoxx added 3.67% reaching 2174.82 levels narrowing down the year to date change down to 11.14%, along with the French CAC 40 index adding 3.63% reaching 2942.741 levels and the German DAX added 4.23% reaching 4305.54 levels.

Ecpulse

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