Europe rate slash in-depth
CNN
Transcript
Let's get more now on the ECB's and BOE's interest rate cut and what that could mean for Europe's economies. James Hughes is a market analyst at CMC Markets. He joins us now live from central London. Good to have you with us, James. Let's start with the Bank of England's whopping 150 basis point cut. I mean, what do you make of that? Well, of course, this is far and away not expected by everyone here today and the markets. But again, the markets haven't done much on the back of it. We look at the Bank of England, what they were going to do with, we're talking maybe 50 basis points here. Some of the others from here, we're talking 75, basically. Now, this is going to be interesting to see exactly how things do react after this. Of course, the markets aren't doing anything at the moment. We saw it 50 points back in and then back off again at almost 140 points down. So we're not expecting... We're not expecting any more rate cuts now. I think we're going to be pretty flat in the rates. 150 basis points is absolutely huge and still no one expected that from this point of view. So that's it now as far as the Bank of England is concerned from your point of view. I mean, there had been those suggesting that the Bank of England could go as low as zero with another rate cut to come perhaps next month and again in January. Well, I think that was the point when we were looking at 50 basis points. Now we've seen 150. Now we don't expect anything else for a good few months. But then again, if you see 150 now, you can't really expect anything else. But then again, if you see 150 now, you can't really expect anything else for a good few months. You can't really go and predict exactly what's going to happen in the next few months. If we saw 50, then we were thinking another 50, maybe January. And that would, of course, help to kickstart things. But of course, 150 now is going to do the job now, which is the hope for the Bank of England. So, liable rates are going to be important from tomorrow's point of view. At 12 o'clock tomorrow, we'll see exactly how the overnight and the three-month rate reacts. And that's going to be important. All right, so we're going to have to wait a little time yet to see proper market reaction. Let's talk about Europe's rate cut, just at half a percentage point. Jean-Claude Trichet spoke for what seemed like forever after the announcement. I mean, it was pretty dull stuff at times as well. What do you make of the European cut? Yeah, of course, they never really come out with anything that exciting. But European one, again, expected. We were expecting to see some sort of moves. Again, from the Bank of England, we expect them to be cautious quite a lot of the time. We expect even more from the ECB. So, seeing the market reaction, seeing their cut, not necessarily a surprise. And of course, the markets have reacted, and it's not necessarily a surprise from their point of view as well. Again, maybe we would expect more rate cuts to come from the ECB as we go in the next few months or so. But still, not a surprise. The market's not necessarily doing that much on the back of it either. All right. One can see why the Bank of England acted as they did, fearing recession in the way that they have done, James. And obviously, the Eurozone economy needing a bit of a kick too. Does this mean that inflation is no longer a danger whatsoever? It is massive interest rate cuts that are needed to stimulate things again. Of course, inflation has been the one thing which has made it impossible for Bank of England to go and do things. Now, the inflation pressures are coming down a bit. And if you look from the consumer point of view, things are a little bit better. We look at lower oil prices, meaning lower petrol prices, food prices coming down. So, we're also going to be looking at mortgage payments coming down. So, it's going to be important going forward, to see exactly how consumers receive this. And of course, we've seen Lloyds TSB pass that on to start off with. If the other banks follow, it's going to be, of course, good news. But they're holding off at the moment. So, it's going to be important to see. But I think from banks passing it on, I think we are going to see it from a competition point of view that's going to happen. And I have a feeling the answer to this is going to be, how long is a piece of string? But how long do you think rates will have to remain at this pretty historic low level in the UK in particular? And as low as they are, how long is the price going to be? Well, I think the answer to that is, I think the price is going to be in the Eurozone as well before they start to move upwards again. Well, we talk about recession maybe lasting until the end of next year. And I think we're going to see low rates for at least that period of time. We're not talking about any lower from rates at the moment. But looking into January, of course, as we said, it's hard to predict. But I think we're going to be looking at low rates until at least the end of next year, and maybe start coming up from there.