A Surprise: Europe Cuts Rates

By CBSNews.com staff CBSNews.com staff

December 3, 1998 / 9:01 AM EST / CBS MarketWatch

European central banks cut their key interest rates to 3 percent Thursday as they aligned their monetary policies for the conversion to a unified currency in January.

Germany, France, Italy, Belgium, the Netherlands, Portugal, Spain, Finland, Ireland, and Austria cut their rates in a coordinated move. Italy's rate was cut to 3.5 percent.

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Hans Tietmeyer, head of the German Bundesbank, said the move was in response to a slower growth outlook for Europe, not political pressure. The Bundesbank cut its repo rate to 3 percent, but kept two other key rates steady. The German discount rate is 2.5 percent and the lombard rate is 4.5 percent.

Tietmeyer said inflation was not a concern in Europe.

Markets in Europe were trading higher before the announcement after the Bundesbank announced it would hold a press conference later, fueling speculation of a coordinated cut. The rally accelerated after the announcement at 8 a.m. EST.

The dollar was higher against European currencies, but lower against the yen. The U.S. Treasury market rallied moderately on the news, while the S&P futures contract turned positive.