Trichet Says ECB May Reduce Rates Again Next Week

By Ben Sills and Gabi Thesing

Oct. 27 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the bank may cut interest rates again at its next policy meeting on Nov. 6 as the financial market crisis damps inflation pressures.

``I consider it possible that the Governing Council would decrease interest rates once again at its next meeting,'' Trichet said in a speech in Madrid today. ``It is not a certainty, it is a possibility.''

Stock markets tumbled around the world today, extending the worst monthly plunge in 70 years, on concern the financial crisis will develop into a prolonged economic downturn. Europe's economy is on the brink of a recession, with the region's manufacturing and service industries contracting at a record pace in October and the Dow Jones Stoxx 600 index down 47 percent this year.

``Given the market stress we're seeing at the moment, it makes sense to frontload the rate cuts,'' said Guillaume Menuet, a senior European economist at Merrill Lynch & Co. in London.He expects the ECB to cut to 2.75 percent by June.

The ECB, which raised interest rates as recently as July, joined a globally coordinated rate cut on Oct. 8, reducing its benchmark by half a point to 3.75 percent. The price of oil, the main inflation driver, has more than halved from its peak of $147.11 a barrel in July.

Improving Inflation Outlook

``If you look at where commodity prices are going, then of course the inflation outlook is improving quite rapidly, so this is very consistent with their inflation target, which will clearly be met in 2010,'' Menuet said.

Trichet said next week's decision whether to cut rates again hinges on the assumption ``that the new information that is progressively coming available since then is likely to indicate a further alleviation of the upside risks to price stability in the medium term and a confirmation of a more solid anchoring of inflation expectations in line with our definition of price stability.''

Investors expect the ECB to cut the benchmark rate by at least another half point when policy makers meet in Frankfurt on Nov. 6, Eonia forward contracts show.

To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net; Gabi Thesing in Frankfurt at gthesing@bloomberg.net