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Pressure mounts for UK and EU rate cuts

Section: Daily Dispatches

By Chris Cook
Financial Times, London
Sunday, November 2, 2008

British and EU monetary policymakers are facing mounting pressure to slash interest rates to historic lows.

The Bank of England's monetary policy committee and the European Central Bank's governing council meet this week amid a clamour for rate cuts unprecedented in their brief histories.

Surveys suggest economists expect cuts of at least half a point in the Bank of England rate to 4 per cent and the ECB rate to 3.25 per cent.

On Saturday the Reserve Bank of India took emergency action to pump liquidity into the country's banking system amid concerns that the global financial crisis would cut significantly India's economic growth.

The RBI cut the repo rate by 50 basis points to 7.5 per cent, lowering the main short-term interest rate for the second time in two weeks.

It also reduced the cash reserve ratio, the amount of money banks have to hold with the central bank, by 100 basis points to 5.5 per cent, releasing about 400 billion rupees ($8 billion) into the banking system.

The measures followed rate cuts by the central banks of Japan and China last week. "The global financial turmoil has had knock-on effects on our financial markets; this has reinforced the importance of focusing on preserving financial stability," India's central bank said.

In a quarterly review for consultancy Deloitte, economist Roger Bootle said he foresaw UK unemployment reaching 3 million by 2010 -- a rise of 1.3 million -- while UK interest rates "could easily fall beneath their previous all-time low of 2 per cent."

Both the Bank of England and the ECB cut rates last month by a half point. But dire economic news in recent data releases mean they will probably be forced to move again.

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