Trichet Says ECB May Cut Rate by Half Point to 1.5% Next Month

European Central Bank President Jean- Claude Trichet said policy makers may cut their benchmark interest rate by a half percentage point to a record low of 1.5 percent next month as a recession in the euro region deepens.

“I don’t exclude that we could reduce interest rates at our next decision,” Trichet said at a press conference in Frankfurt after leaving its key rate at 2 percent today. When asked whether the ECB will cut by a half or a quarter point, Trichet said: “It would probably more be the first figure.”

The ECB has so far been reluctant to adopt the more aggressive path of other central banks from Washington to London and Trichet said today he wants to avoid cutting rates to zero. The Bank of England lowered its benchmark to 1 percent today, the lowest since it was founded in 1694, and the Federal Reserve has reduced its benchmark almost as far as it can.

“Zero rate doesn’t seem to us appropriate at this stage,” Trichet said. He also said price pressures are waning and uncertainty across the economy “remains exceptionally high.”

“Looking ahead, lower commodity prices confirm our assessment that inflationary pressures in the euro area are diminishing,” Trichet said.

Europe is sliding into its worst recession since World War II. Spain’s industrial production plunged by a record 19.6 percent in December, a report showed today. In Germany, Europe’s largest economy, factory orders extended their worst slump on record.

Europe’s service and manufacturing industries contracted for an eighth month in January and confidence in the economic outlook fell to a record low. The International Monetary Fund predicts the euro region’s economy will contract 2 percent this year.