25 or 300 points less than in September 2008

Against all expectations, the European Central Bank lowered its rate guiding only 25 point basis yesterday, then that most economists expect a gesture of 50 basis points. Main refinancing rate is now at 1.25, or 300 points less than in September 2008. The Governing Council also decided to maintain the corridor between the various rates. Result: the deposit facility, which is the instrument allowing banks to put their liquidity from the ECB, is therefore now paid at 0.25.

The President of the Central Bank, Jean-Claude Trichet, said that the decision had been made "by consensus" and not by unanimity, signs of new differences in the Council. Knowing that he was not monetary status quo question, this means that some European Central bankers wanted a further gesture.

The result of a consensus

They should obtain satisfaction next month. Jean-Claude Trichet clearly suggested that the ECB was prepared to go further to support the economy: "Concerning the main rate of funding, we have not reached the floor level." "I don't exclude that it is lowered very measured way", in other words, by 25 basis points. A decision that would probably happen in may or June. The proposal institution could also tighten the corridor to avoid that the deposit facility saw its rate falling to zero. "The deposition rate is already at a low level." "I do not expect that we shortly afterwards", said Jean-Claude Trichet.

Why, then, do not cut rates by 50 basis today points by reducing the gap between different rates Jacques Cailloux, Economist at RBS, think that the decision of yesterday is the result of a consensus "between those who think that the corridor may not be reduced and those opposed to pay the deposit to zero facility." Last year, the ECB had already reduced the gap between its rates, but had been reversed, because banks had massively placed their liquidity instead of the lend.

The Central Bank could also move on the part of the "non-standard" measures "The Governing Council intends to make its decision next month", said Jean-Claude Trichet, who insists on the fact that with its fixed-rate refinancing operations, the ECB is already in a situation that is not conventional.

"Our balance sheet as a percentage of GDP is higher than that of the US Federal Reserve." "And the six and twelve month money market interest rates are already lower than those of the U.S. monetary market," he says, in response to criticism that the European Central Bank is not enough to the crisis.

Economists do not expect to as aggressive than the Fed or the Bank of England. The ECB will probably decide to lengthen the maturity of its refinancing operations, for the moment limited to six months, to lend to the banks for a period of nine or twelve months. It could also launch buy-backs of bonds issued by companies. Intervention on the market of government bonds, sensitive political and prohibited its legal, seems less likely. Finally, some economists do not exclude a new extension from the list of the collateral accepted.