European Central Bank
is not a piecemeal kind of guy.
Rather than give the euromarkets a rate cut here and a rate cut there, Europe's head banker lopped half a percentage off the key refinancing rate, the eurozone's equivalent of the fed funds rate, on Thursday.
It's an open question whether the move, which drives the rate to 2.5%, will spell relief for Europe's flagging economies. What is much more obvious, observers say, is that it is bound to stir up the continent's traders when financial markets reopen Friday morning.
Less -- the ECB may be on the way to proving -- is really more. Investors had hoped a quarter-point cut would spice up markets, and leave the bank room to maneuver rates lower again later this year. Central banker generosity, however, makes that scenario less likely, and some market watchers fret the next move could even be in the opposite direction.
Duisenberg, always blunt, confirmed those fears while explaining the move to reporters at the Frankfurt chamber of commerce, down the road from the ECB headquarters. "We were afraid a smaller move would lead to expectations for further cuts later on," he said. "Taking a greater-than-expected move, we can now say 'we are sure this is it.'"
Maybe, but Duisenberg's sudden slashing fit, which even
would envy, will unsettle many.
For the past three months, Duisenberg has talked tough, defending the ECB's 3%. Now he is selling the continent, as well as the rest of the world, on the idea that 2.5% is the appropriate level, at least for the "medium term."
While gloomy Europeans, preoccupied with a war in their backyard, may be looking for the dark lining in this silver cloud, American markets had a sunnier view. Lower European rates, traders in New York reasoned, make relatively high-yielding U.S. bonds look all the better.
Time will tell if lower rates will abrade the region's slowing growth -- the
recently cut its 1999 growth forecast to 2% -- but many economists say it's a pretty good bet.
"We feel this is the right move at the right time," said Joachim Fels, an economist at
in London, who was among the few arguing the bank needed to cut by a half percentage point to reinvigorate the region. "There might be some disappointment in the markets tomorrow that there won't be any other cuts down the line, but the net impact should be very positive."
Perhaps foreseeing confusion in the European markets Friday morning, Duisenberg said the bank would make future interest-rate announcements earlier in the day. Results of the next meeting, two weeks from now, will be made public in midafternoon, rather than at the current time of 6:30 p.m.
That means traders will still be at the bourses rather than at the bars.