The European Central Bank slashed interest rates by 50 basis points on Thursday, hoping to breathe life into the euro zone economy as it faces its first recession.
The widely-expected cut took the ECB's benchmark rate to a two-year low of 3.25 percent, reflecting the euro zone's sharply deteriorating economic outlook and easing inflation pressures.
Shortly before the ECB decision the Bank of England cut British rates by 150 basis points to 3.0 percent, far more than analysts and markets had expected, as the U.K. economy heads into deep trouble.
Analysts immediately shifted their focus to ECB President Jean-Claude Trichet's 1330 GMT news conference for any indications of further action the bank might take next month.
"Even after today's 50 basis point rate move, we don't think that the end of the easing cycle is near," said Rainer Guntermann, euro zone economist at Dresdner Kleinwort. "Economic troubles are likely to persist."
"The guidance will as always remain flexible, data- or information-dependent. But the door to further rate cuts, to further monetary policy easing is very, very likely to remain wide open," Guntermann added.
All 81 economists polled by Reuters last week had expected Thursday's 50 basis point rate cut as easing inflation pressures mean the ECB faces fewer problems reaching its goal of annual inflation just below 2 percent.
Euro zone inflation fell to 3.2 percent in October after peaking at 4 percent over the summer.
The euro zone's economy, which had grown steadily since the bloc's creation in 1999, contracted by 0.2 percent in the second quarter this year and most economists expect further shrinkage in third quarter GDP figures due on Nov. 14.
ECONOMIC STANDSTILL
The European Commission said on Monday that the euro zone is already in a technical recession and predicted economic growth will come to a virtual standstill next year.
Data showing bigger-than-expected job losses in the United States, a sharp contraction in the world services sector and steep house price declines and a manufacturing retreat in Britain all underscored the global gloom.
Business confidence in Europe's major economies is at record lows due to the recent intensification of the financial crisis and as it suffers the hangover of record inflation and a jump in the strength of the euro over the summer.
Politicians in the 15-country euro zone are hoping the rate cut will stave off the recession or at least help to keep it short, and the impact on unemployment limited.
Thursday's 50 basis point move repeated the emergency cut the ECB made on Oct. 8 in tandem with six other central banks, including the U.S. Federal Reserve and the Bank of England.
The Fed and the Bank of Japan also cut rates last week.
Economists in the Reuters poll expected the ECB to keep cutting as the economy slows and inflation risks evaporate. The median expectation is for the main refi rate to hit 2.5 percent in mid-2009.
ECB Executive Board member Juergen Stark was quoted on Wednesday as saying economic growth would be very weak well into 2009 and oil price fluctuations could push inflation briefly below zero. But he saw no threat of a deflation spiral which would further damage the real economy.
The ECB would use all instruments at its disposal, including interest rates, to tackle the situation, he said.
