Rate cuts spearhead battle against crisis

Rate cuts spearhead battle against crisis

BANGKOK/LONDON

Thursday, December 4, 2008

THAILAND led a global charge to cut interest rates yesterday, with countries from Europe to New Zealand expected to follow in the next few days to fight an unrelenting financial crisis.

South Korea took steps to help local banks through a cash crunch and US Treasury Secretary Hank Paulson was reportedly debating if he should ask lawmakers in Washington for the second half of a US$700 billion bank rescue package.

Russian state bank VEB reportedly asked the Kremlin for a US$34 billion cash injection in the latest sign that the major emerging market was also feeling the heat of a crisis that has forced the United States, Japan and Europe into recession.

Pressure for big rate cuts in Europe and Britain grew with a survey that showed the eurozone's services economy fell deeper into recession in November than first thought.

The Bank of Thailand slashed its main interest rate for the first time in 16 months to help an economy hit both by the global downturn and political unrest, cutting its main interest rate by a bigger-than-expected 100 basis points to 2.75 per cent.

Australia slashed rates on Tuesday and the eurozone, UK, Sweden and New Zealand all make rate decisions today.

The Markit Eurozone Purchasing Managers Index for services companies, which covers banks to bars in the eurozone, plunged to 42.5 in November from October's 45.8 level, the lowest in the survey's 10-year history.

It also showed inflationary pressures eased, making it easier for the European Central Bank to cut rates sharply.

"There is ample room for the ECB to cut rates ... We think 75 basis points will be the compromise, but we would not rule out a cut by 100 basis points," said Juergen Michels at Citi.

The equivalent survey for Britain showed its dominant services sector shrank in November at its fastest pace since the series began in 1996, boosting expectations the Bank of England will slash interest rates by a full point today.

The Federal Reserve, which is also expected to cut US rates again later this month, will release its closely-watched Beige Book of economic conditions later in the day.

Reuters