British central bank cuts interest rate, ECB holds steady

Special Report:Global Financial Crisis

LONDON/FRANKFURT, Feb. 5 (Chinese media) -- As the

international financial crisis has affected the economies of most developed

countries, Britain's central bank cut its benchmark interest rate on Thursday to

a record low but the European Central Bank (ECB) left its borrowing rate steady.

The Bank of England (BOE) lowered the benchmark

interest rate by half a percentage point to 1 percent, the lowest since the

British central bank was established in 1649 by William III, in an effort to

boost the flagging economy.

Pedestrians walk past the Bank of

England in London February 5, 2009. The Bank of England cut interest rates

by another 50 basis points on Thursday to a record low of 1.0 percent,

aiming to help the British economy out of recession by getting consumers

and companies to spend again. (Chinese media/Reuters Photo)
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The latest move marked a 4-percentage point interest

rate cut since October by the BOE.

"The global economy is in the throes of a severe and

synchronized downturn," the BOE said in a statement.

It said business and household sentiment in many

countries had "deteriorated " and the supply of credit remained "constrained."

And in Britain, "credit conditions faced by companies

and households have tightened further," it said.

According to an estimation of the International

Monetary Fund, the British economy will shrink the most this year since 1946,

and faster than any other industrialized country.

Meanwhile, the Frankfurt-based ECB on Thursday kept

the interest rate steady at 2 percent after four cuts since October.

But ECB President Jean-Claude Trichet indicated that

the bank will probably cut interest rates in March in an effort to stabilize the

economic decline.

Trichet said he did not exclude the bank's governing

council lowering rates from the current 2.0 percent at its next policy meeting

in March.

"We confirm that 2 percent is not the lowest

level...I don't exclude that we could decrease rates at our next meeting,"

Trichet told reporters.

However, zero interest rates were not appropriate "at

this stage," he said.

Asked whether the ECB will cut the rate by 50 or 25

basis point in March, Trichet said "the first figure" is more likely.

"We are not embarking on qualifying the amplitude,

but I have noted that what is at the moment, as we speak, present in the market

would probably be more the first figure that you have mentioned," Trichet said.

He said inflation risks were being "broadly balanced"

and economic uncertainties remained very large.

Trichet's remarks were in line with experts'

anticipation that the rates would fall to 1.5 percent in March and 1 percent

later in the year.