Financial thoughts

China’s growth could well slow to its weakest pace in almost two decades next year, the World Bank said, the latest grim prognosis for a global economy buckling despite the concerted efforts of policymakers.

What started more than a year ago as a meltdown in the U.S. market for high-risk mortgages has engulfed the world, freezing access to credit, sparking bank collapses and requiring the financial bailout of entire countries.

Qantas Airways, motorcycle maker Honda Motor and camera company Canon added their voices to a chorus of firms warning of the effects of the slowdown.

But the U.S. government’s weekend rescue of No.2 bank Citigroup Inc provided some respite for battered equity markets, with Asian shares up more than 3 percent on Tuesday following a surge on Wall Street the previous session.

A 20 billion pound plan to kickstart the British economy announced on Monday and hopes for an aggressive stimulus package from U.S. President-elect Barack Obama also provided some relief.

In an effort to free up lending to cash-strapped consumers, U.S. Treasury Secretary Henry Paulson plans to announce a program to boost the availability of auto loans, student loans and credit cards, the Wall Street Journal reported.

CHINA CHALLENGE

China this month unveiled a 4 trillion yuan ($586 billion) spending package to help prop up its economy, but growth would still likely slow to around 7.5 percent in 2009, from 9.4 percent this year, the World Bank said in a report.

That would be China’s slowest growth since 1990 and below a pace of 8 percent that conventional wisdom suggests is needed to absorb newscomers to the workforce free business cards.

But World Bank country director David Dollar said at the forecast rate of growth, China would continue to create enough jobs and the labor market would remain “pretty tight.”

More than half the forecast growth next year would come from Beijing’s stimulus package, while net exports, by contrast, would lop 1 percentage point off growth as overseas demand for Chinese goods slows, the bank said.

In Oman, Gulf Arab finance and foreign ministers were meeting to hammer out a final agreement on a joint central bank for the six members of the Gulf Cooperation Council. The global turmoil is taking an increasing toll on the oil-rich region and has given a sense of urgency to the long-standing plan for monetary union.

Evidence continued to mount about the parlous state of the global economy elsewhere too.

In Japan, which suffered years of economically damaging deflation, the cost of business services fell the most in five years in October, while the Bank of Japan cut its assessment on exports and output.

The Organisation for Economic Co-operation and Development is due to present a report on its global economic outlook later on Tuesday. Developed economies, including the United States, Japan and the euro zone are widely expected to shrink next year, dragging emerging economies into a punishing slowdown as access to credit remains tight and consumer confidence evaporates. 

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General Electric Co. said Tuesday that it is reorganizing its GE Capital unit to save $2 billion next year, a move the company said will lead to job cuts as it restructures and shrinks the size of the lending arm battered by the credit crisis.

In a video posted on the company’s blog, GE Capital Chief Operating Officer Bill Cary said GE Capital, which provides commercial and consumer loans, has "evolved to the point where we think we are going to be smaller in 2009."

A special group will focus on reducing the company’s holdings in areas that "don’t meet our return hurdles," he said, but did not provide details on particular lines of business.

GE Capital will also reduce its work force, currently around 75,000 employees, by an unspecified number of jobs, Cary said.

"We clearly believe we are going to need less resources," he said.

The changes, which include establishing centers for GE Capital in Asia, the Americas and Europe, will take effect on Jan. 1. It will also have a unit focusing on banking and another on restructuring.

GE first announced changes to GE Capital during a company wide reorganization in July. The industrial powerhouse runs businesses touching on a wide-range of sectors in the U.S. economy, including health care, energy, aviation and entertainment through the NBC Universal division. As the economy has faltered, Fairfield, Conn.-based GE has quit some riskier financial ventures, such as subprime mortgages and insurance.

GE Capital, which makes loans for everything from consumer car purchases to commercial energy projects, is expected to make around $9 billion this year cash advance in one hour. The company projects the financing division will provide around 40% of its overall earnings by the end of 2009.

But the ongoing turmoil in the banking and credit markets has been a blow to GE Capital. In October, the company said GE Capital posted a 33% profit decline in the third quarter, helping to drag down GE’s overall quarterly results by 22%.

At the time, GE said it expected to earn more than $9 billion from GE Capital and between $19.5 billion and $21 billion overall for 2008.

The Federal Deposit Insurance Corp. has approved GE Capital to participate in a Temporary Liquidity Guarantee Program, which would give it backing for as much as $139 billion in short- and long-term debt. GE has also said it will tap a Federal Reserve short-term funding facility meant to prop up struggling lenders.

However, GE has chosen not to convert GE Capital into a bank holding company as other ailing financial institutions have done, saying its Triple-A credit raring makes such a move unnecessary.

GE CEO Jeff Immelt is expected to provide more detail on the changes Dec. 16, said GE spokesman Russell Wilkerson.

Shares of GE (GE, Fortune 500) rose 7 cents in after hour electronic trading Tuesday after closing down 5 cents to $16.06 

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Retail gasoline prices fell further overnight, bringing the decline since the summer’s record high to nearly $2 a gallon, according to figures released Friday.

The national average price for a gallon of regular gasoline fell 2.6 cents to $2.152 from $2.178 Thursday, according to a daily survey for the American Automobile Association.

The price of gas has dropped $1.962, or 48%, since hitting an all-time high of $4.114 in July.

Gas prices have declined for 58 days in a row, tumbling more than $1.70, or 44.2%, in that time. Friday’s national average price is the lowest since Jan. 31, 2007, when it was $2.151.

The states with the highest gas prices were in Alaska, at $3.221 a gallon, and Hawaii, at $3.079.

Missouri had the cheapest gas in the nation, at $1 free credit score.864 a gallon, and is one of 9 states with average prices below $2.

Even as gas prices fall, demand has continued to slip. MasterCard’s weekly survey of gas station credit card swipes showed demand down 4.2% last week, compared to the same period last year.

The rapid decline in gas prices comes as the price of crude oil continues to collapse. Crude prices, which make up roughly half of gasoline prices, have fallen more than 60% since hitting a record $147.27 a barrel on July 11.

Crude for December delivery settled at $58.24 on Thursday.  

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This was the summer of $4 a gallon gas - and its impact on Americans is reflected in our lexicon.

The New Oxford American Dictionary crowned "hypermiling" as its word of the year for 2008.

To hypermile is to maximizing gas mileage by making fuel-conserving adjustments to one’s car and driving techniques.

Hypermilers keep their tires properly inflated, remove the roof rack from their vehicles, and turn engines off rather than letting them idle at stoplights, according to a statement from the dictionary.

The term was coined in 2004 by Wayne Gerdes, and the dictionary reports that it has attracting a following who "push their gas tanks to the limit" in an effort to exceed EPA ratings for miles per gallon.

President-elect Barack Obama alluded to the practices of hypermiling on the campaign trail by recommending keeping tires properly inflated, and California Gov. Arnold Schwarzenegger has called for EcoDriving, the dictionary reported short-term cash loans.

Frugalista: Person who leads a frugal lifestyle but stays fashionable and healthy by swapping clothes, buying second-hand, growing own produce, etc.

Moofer: A mobile out-of-office worker, as in someone who works away from a fixed workplace, via BlackBerry, a laptop, or Wi-Fi. Also can be used as a verbal noun, as in moofing.

Topless meeting: A meeting in which the participants are barred from using their laptops, BlackBerries or cellphones.

Toxic debt: Mainly sub-prime debts that are now proving so disastrous to banks. They were parceled up and sent around the global financial system like toxic waste, hence the allusion. 

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State unemployment insurance trust funds are rapidly running out of money amid soaring job losses.

This is prompting state officials to consider raising employer taxes or curtailing benefits, while forcing them to borrow from the federal government to cover claims.

"Some states didn’t have adequate reserves built up," said Andrew Stettner, deputy director of the National Employment Law Project. "They are having significant problems paying out the increased number of benefits."

The number of people collecting state unemployment benefits hit a 25-year high of 3.84 million, on a seasonally adjusted basis, the Labor Department said Thursday. The following day, the department announced that 240,000 jobs were lost in October, pushing the unemployment rate up to 6.5%, up from 6.1%. It’s the highest rate since March 1994. Nearly 1.2 million jobs have been lost this year.

With companies unveiling mass layoffs almost daily, states are likely to see further strains on their trust funds. This comes at a time when the weakening economy is already putting great stress on governments and employers alike.

The trust funds are financed through unemployment insurance taxes levied on businesses. States must pay out the claims promised under the law, even if they have to borrow the funds from the feds.

The trust funds of five states are insolvent - meaning they have reserves of three months or less - while another eight state funds are nearly insolvent with reserves of four to six months, according to the National Employment Law Project. Six other states don’t have enough money to cover a year of payments.

Michigan, hit hard by the collapse of the auto industry, has essentially nothing left in its trust fund, said Norman Isotalo, spokesman for state’s Department of Labor & Economic Growth. New initial claims are up 21% over a year ago, while the unemployment rate hit 8.7% in September, up from 7.3% a year earlier.

Though it has borrowed money from the feds to cover claims since 2006, Michigan has avoided paying interest on the loan by repaying it quickly. The state, however, no longer has the funds to repay the loan, which currently totals nearly $473 million. The debt will starting accruing interest in January, and the state will pass along the additional fees to employers.

Businesses already shell out between .06% and 10.3% on the first $9,000 of earnings of each worker, depending on how many of their former employees are drawing benefits. About 20% of companies soon will start paying up to $67.50 in an additional solvency tax, levied on employers who have paid less in unemployment taxes than their former employees have received in benefits.

The state realizes the additional tax will impose yet another burden on struggling companies, but the law does not allow exceptions, said Stephen Geskey, director of Michigan’s Unemployment Insurance Agency.

"It is not an optimal time for the solvency tax to kick in," Geskey said. "But there’s really no wiggle room."

The Michigan fund is being squeezed, in part, because of changes lawmakers made over the past 12 years, Geskey said. When times were good — the fund had a $3 billion balance in 2001 — officials lowered the tax rate. This resulted in a loss of $1.1 billion in contributions, he said Faxless pay advance.

Spurred by the looming interest payments, legislators are only now planning to address the matter. Discussions should begin soon, said Democratic state Sen. Michael Switalski.

"Now it has our attention," Switalski said. "We’re going to have to deal with it."

In Ohio, claims are running 40% above last year’s levels. The state’s trust fund is running an uncomfortably low balance of $305.6 million. Its own calculations show it needs $2.3 billion to withstand a moderate recession, said Sara Hall Phillips, labor policy analyst with the state’s Department of Job and Family Services.

Ohio lawmakers failed to act on recommendations by a state advisory council to replenish the fund. The council had proposed raising taxes paid by employers and freezing workers’ benefits for three years, Hall Phillips said.

Employers in Ohio pay between 0.5% and 9.2% on the first $9,000 of earnings of each worker. The maximum weekly benefit is $365 for a worker with no dependents.

Even though the fund will likely run out of money by early January, lawmakers likely won’t address the issue before the middle of next year.

The rising number of claims is not the only reason the fund is running out of money, Hall Phillips said. The law calls for benefits to increase annually, though there’s no provision for taxes to do the same.

When Ohio faced a similar fiscal crunch in the 1980s, forcing it to borrow from the feds from 1980 through 1988, it had to temporarily freeze benefits and raise taxes.

"Claimants will still receive unemployment compensation benefits and that will continue no matter what happens with the trust fund or with the legislature," she said. But "benefits may be locked at that level for a few years."

The implosion of Wall Street and the weakened economy around the state has led to a surge of unemployment claims in New York. The state now pays benefits to 148,000 people, up from 113,000 a year ago, said Leo Rosales, spokesman for the state Department of Labor.

As a result, New York’s trust fund has dwindled to $357 million, down from $538 million a year ago. To meet its obligations, the state has been borrowing from the feds for years, receiving nearly $1.1 billion over the past three years alone. In 2006, the state had to pay $7 million in interest of $1.5 billion it borrowed in 2005.

The state legislature tried unsuccessfully in the spring to increase unemployment insurance taxes, while also raising the maximum weekly benefit, which now stands at $410, to $550. The bill would have increased the wage base to $11,500 over time, from its current $8,500.

Tuesday’s election left Democrats in control of both chambers of the state legislature, and the bill now has a better chance of getting passed, said Assembly member Susan John, a Democrat, chair of the labor committee.

"Members are back home in their districts and are recognizing how much people are struggling," John said. 

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The Treasury Department is reviewing the trading of two- and five-year notes after a scarcity in U.S. government securities triggered by the credit crunch led to a record level of failed transactions.

The probe comes two days after Karthik Ramanathan, the acting assistant secretary for financial markets, told bond dealers to fix chronic settlement problems or submit to tougher regulation. The Treasury has conducted at least nine such reviews, known as “large position reports,'' to monitor trading and guard against market manipulation since 1997.

The overnight repurchase, or repo, agreement rates for two- and five-year notes have traded at about 0.05 percent since the start of October, among the lowest of all Treasuries. When demand for a security rises, traders lend cash at a wider spread below the federal funds rate to obtain the needed securities, charging even zero interest at times. Failures to deliver or receive all Treasuries in the repo market climbed to a record $5.31 trillion in the week ended Oct. 22.

“The Treasury is very concerned and wants the market to be fluid and liquid,'' said E. Craig Coats Jr., co-head of fixed income at Keefe, Bruyette & Woods Inc. in New York. “They are looking at these position reports from the standpoint that if you have one person that is just hoarding a security and disrupting the market, then the Treasury is going to have a conversation with them to find out why and encourage them not to.''

`Elevated Level'

The Treasury asked for information on the 2 percent note maturing Sept. 30, 2010, and the 3.125 percent note maturing Sept. 30, 2013. Bond dealers or investors with “reportable positions in either of these notes equal to or exceeding the $2 billion threshold must submit a separate report for the security to the Federal Reserve Bank of New York'' before noon on Nov 1000 cash advance. 14, the Treasury said in a statement released in Washington.

“The request for information this morning pertains to the elevated level of fails to deliver in these particular securities for a prolonged period of time,'' Treasury spokeswoman Brookly McLaughlin said. “This request is another way, beyond speaking with market participants, to ensure that Treasury understands current market conditions.''

The large position reporting program was established in 1996 in the aftermath of the Salomon Brothers bond market scandal. The confidential reports requested today are for positions held on Nov. 6 at the close of business. McLaughlin declined to comment on the results of previous position reports.

Trading Fails

Failed trades, or “fails,'' have been a problem since 2003, when supply shortages first collided with the technical effects of low interest-rate levels.

“The Treasury is definitely interested in putting an end to these trading failures,'' said Bulent Baygun, head of interest-rate strategy in New York at BNP Paribas Securities Corp., a unit of France's largest bank. “There isn't a whole lot that they can do besides reopening issues and they expressed this week a big aversion to'' doing that.

Securities that can be borrowed at interest rates close to the Fed's target rate are called general collateral, while those in the highest demand are called “special'' by traders because rates on loans secured by these securities are lower.

The overnight general collateral repo rate was 0.25 percent today, which match where the overnight fed funds rate traded. The central bank's official target rate for overnight loans is 1 percent.

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Bank of England Governor Mervyn King is turning up the heat on financial institutions refusing to cut interest rates for the country's homeowners.

As Prime Minister Gordon Brown struggles to convince lenders to ease credit amid the worst housing slump since the early 1990s, King's central bank yesterday cut its key rate by 1.5 percentage points to a five-decade low of 3 percent. The scale of the move, the biggest since 1992, will put pressure on Lloyds TSB Group Plc and others to provide cheaper loans.

“The size of the cut is so glaringly large, they'll just have to make some effort to pass along some of it,'' said Matthew Sharratt, an economist at Bank of America Corp. in London. “For banks to say they're not in a position to pass any of the cut on would increase the political heat so much they potentially don't want to go there.''

Brown is pushing banks to comply with the strings attached to last month's 50 billion-pound ($78 billion) rescue plan. While the Treasury wants the industry to return lending to 2007 levels, mortgage lending is approaching a record low amid the biggest financial crisis in almost a century.

“I want to ensure that banks pass the benefit on to people,'' Chancellor of the Exchequer Alistair Darling told BBC television after the rate decision. “Banks need to play their part. They now have to help their customers.''

Reluctance

So far, banks are still reluctant to comply on concern credit markets will stay strained. Yesterday, Nationwide Building Society pulled all its mortgage offers tracking the Bank of England's rate. Northern Rock Plc, which was nationalized this year, and Abbey National earlier this week increased rates on tracker deals even as most economists forecast a 50 basis-point cut from the Bank of England easy online payday loans.

“Although bank rate has come down, the level at which we fund is still a long way above bank rate,'' said Martin Ellis, chief economist at HBOS Plc, the U.K.'s largest lender. “It's going to take a while to come through. The cut will help the market, but it's hard to quantify by how much.''

At 5.56 percent, the cost of borrowing pounds for three months was 1.06 percentage points above the Bank of England's benchmark rate yesterday morning. The gap was 0.2 point before credit markets seized up last year.

The lending drought is putting pressure on the U.K.'s housing market, which is the biggest store of wealth for British citizens. Banks approved 33,000 mortgages in September, a third of last year's monthly average, and property prices plunged 14.9 percent in October from a year ago, HBOS said yesterday.

Mortgage Rates

Banks have barely cut their lending rates since December of last year. The average rate on home loans that track the central bank's rate was 6.12 percent in September, when the Bank of England's benchmark was 5 percent. That compares with 6.2 percent in December when the key rate was at 5.75 percent.

The rate cut may also help spark interest in a housing market that's been falling for a year. Traffic on Rightmove Plc's Web site, which displays more than 90 percent of U.K. homes for sale, leaped 20 percent after the decision.

“Buyer affordability and the start of recovery in the housing market is now in the hands of lenders,'' said Miles Shipside, commercial director at Rightmove.

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Bond insurers MBIA Inc (MBI.N: Quote, Profile, Research, Stock Buzz) and Ambac Financial Group (ABK.N: Quote, Profile, Research, Stock Buzz) reported large third-quarter losses on Wednesday, hurt by further writedowns and limited new business, sending both companies’ shares into a tailspin.

The companies have been hit hard by the credit crunch and have lost their AAA ratings after posting billions of dollars of losses from exposure to mortgages and complex debt instruments.

They have been seeking a way to tap into the government’s $700 billion bailout plan for the financial sector as the downgrades and shaky global credit markets have limited their chances for writing new business.

“It’s obviously a key focus for us,” Ambac Chief Executive Officer David Wallis said on a call with analysts. The company has sent a submission to the (U.S.) Treasury outlining the reasons why it is eligible for government funds, he said.

On the call, Ambac Chief Financial Officer Sean Leonard said the Treasury’s plan to buy distressed assets could also help improve the valuations of Ambac’s complex mortgage holdings.

It is not yet clear if MBIA or Ambac will have access to government funds. Wallis said Ambac has not had any formal response from the Treasury.

MBIA’s Chief Executive Jay Brown was more cautious, noting on a call with analysts it is “premature” for the company to comment on the possible outcome of the government’s action cash advances pay day loan.

Ambac, in particular, the smaller of the two companies, has struggled to continue writing insurance as its credit rating has been downgraded.

Both companies are looking to launch entities that will focus on insuring public finance in a return to their traditional business.

Ambac, which said on Wednesday it has postponed the launch of its planned entity known as Connie Lee, as it is still talking to rating agencies. On its call with analysts, MBIA’s Brown said the company has begun talks with regulators and rating agencies about its plans.

Ambac posted a third-quarter operating loss of $7.81 per share, much wider than analysts’ average loss forecast of 90 cents, according to Reuters Estimates.

Ambac had $2.7 billion of unrealized losses on credit derivatives contracts in the quarter.

Ambac shares tumbled 32.9 percent to $2.28, while MBIA shares fell 19.7 percent to $8.40.

MBIA said it increased reserves in the third quarter by $961 million, related to certain residential mortgage guarantees, reflecting an increase in delinquencies and a higher level of assumed future losses.

The company also said it had launched legal action against several loan servicers on past transactions that did not meet eligibility criteria for MBIA-insured transactions. 

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European finance ministers ruled out a joint stimulus package to revive the region's economy and vowed instead to coordinate national policies as they try to limit the fallout from a recession on consumers and companies.

“We do not believe that in the euro area we need a general revival package, a sort of traditional program designed to stimulate the economy,'' Luxembourg Finance Minister Jean-Claude Juncker told a press conference after leading a meeting of euro- area counterparts in Brussels yesterday.

Euro-area finance chiefs met hours after the European Commission slashed its growth forecasts and predicted that the economy would stagnate next year. While French President Nicolas Sarkozy has called for a joint package to help the region combat the economic slump, the ministers indicated they favor a looser system of “coordinated'' measures.

European Union countries have already begun planning measures to jumpstart their own economies, with Germany preparing a two-year program of investments and incentives to provide a 50 billion-euro ($64 billion) stimulus. EU Monetary Affairs Commissioner Joaquin Almunia said such plans weren't at odds with the EU approach.

“I don't think adopting measures at the national level is inconsistent with the need to coordinate actions, provided the national decisions are integrated in an adequate framework,'' he said at the press conference late yesterday. “What I want to avoid is the negative spillover of some decisions that can create problems for the good functioning of the internal market.''

Financial Rules

Both Sarkozy and U.K. Prime Minister Gordon Brown have called for a redrawing of global financial rules under a “new Bretton Woods,'' referring to the 1944 conference that created the modern global economic system as well as institutions including the International Monetary Fund and World Bank.

French Finance Minister Christine Lagarde may continue to push for an EU-wide plan when ministers from all 27 EU nations meet today. European heads of state are set to meet later this week before a Nov. 15 summit of the so-called Group of 20 industrialized and developing nations in Washington.

“It's a goal the president never gave up on, so I'm not going to give up on it either,'' Lagarde said in an interview with Bloomberg News before yesterday's meeting, referring to Sarkozy. “We must tackle it collectively.''

Her Finnish counterpart Jyrki Katainen said countries “who can afford it should use stimulus measures for the economy.''

`Quite a Lot'

“We have done quite a lot already,'' Katainen said in an interview today in Brussels cash loan till pay day in one hour. “We must talk about the economic measures and finance-policy measures which must also be coordinated.''

Juncker and Almunia both said any measures must not be introduced at the expense of the EU's Stability and Growth Pact, which sets a budget-deficit limit of 3 percent of gross domestic product.

“We don't intend to change the rules of the Stability and Growth Pact,'' Juncker said. Almunia said countries could “draw on the flexibility provided by the pact,'' which allows temporary breaches in “exceptional circumstances.''

As well as cutting its economic-growth outlook, the Brussels-based commission yesterday forecast that the euro area's average budget deficit will widen to 1.8 percent in 2009, which would be the biggest since 2005, from 1.3 percent this year. The euro region's economy will grow just 0.1 percent next year, the worst performance since 1993, after shrinking for three consecutive quarters this year, it said in its autumn forecasts.

Interest-Rate Cuts

The European Central Bank, which has already offered unlimited dollars to unfreeze credit markets, cut interest rates last month for the first time since 2003 as part of a global coordinated move. The ECB and the Bank of England both will probably cut their key rates by another 50 basis points this week, surveys of economists show.

Europe's manufacturing industry is already shrinking at a record pace, according to data published yesterday, while executive and consumer confidence has plunged to the lowest in 15 years. Still, inflation is easing as oil prices drop, giving the ECB room to cut interest rates more.

Separately, the commission has proposed to more than double to 25 billion euros ($32 billion) the overall limit on loan aid to distressed member countries outside the euro area as the fallout from the financial crisis threatens the continent's economy. The finance ministers today endorsed a 6.5 billion-euro loan to Hungary under the program, part of a 20 billion-euro international package to help that nation.

While the EU's outlook published yesterday includes a technical recession this year and little growth in 2009, it may still be too optimistic, said economists at Citigroup Inc. and BNP Paribas, both of which have forecast a contraction next year. The forecasts “are a dramatic shift for the commission,'' said Luigi Speranza, an economist at BNP in London. “But there is more downside to come.''

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The European Central Bank has embarked on the fastest round of interest-rate cuts in its history as the financial crisis threatens to cripple the economy, a survey of economists shows.

The Frankfurt-based ECB will slash its benchmark rate to 2.5 percent by April, according to the median of 28 forecasts in the Bloomberg News survey. That would see the rate drop 1.75 percentage points from its 4.25 percent peak in six months, outpacing the ECB's last easing cycle between May 2001 and June 2003. The bank has already lowered the rate by half a point 3.75 percent as part of a globally coordinated move on Oct. 8.

“Desperate times call for desperate measures,'' said Julian Callow, chief European Economist at Barclays Capital in London. “The economy is fast sinking into recession and as a number of Governing Council members were directly involved in bank rescues it has really brought the crisis home for them.''

Central banks around the world are cutting borrowing costs aggressively as the financial crisis that started with the U.S. housing slump threatens to tip the global economy into recession. The economy of the 15 nations sharing the euro shrank in the second quarter and executive and consumer confidence in the outlook fell the most on record this month to a 15-year low.

ECB President Jean-Claude Trichet said this week a rate reduction at the Nov. 6 policy meeting is likely as inflation pressures ease. The ECB will cut its key rate by another half- point to 3.25 percent next week, a survey of economists shows. Quarter-point cuts will follow in December, February and April, according to the survey.

`Down Rapidly'

Deutsche Bank economists predict the ECB will cut the rate to a record low of 1 freecreditreport.5 percent by the middle of next year.

“If the economy cools, then rates have to come down rapidly so one doesn't risk falling behind the curve,'' ECB council member Axel Weber said last night. Fellow council member Nout Wellink told the Dutch parliament yesterday that economic growth in Europe “is more likely to be closer to 0 percent than 1 percent next year.''

Inflation is slowing as the economy stumbles and oil prices slump. The euro-area inflation rate dropped to 3.2 percent in October from 3.6 percent in September, the European Union statistics office in Luxembourg said today. ECB policy makers including France's Christian Noyer expect the rate to fall below the bank's 2 percent limit by the middle of next year.

“Inflation is easing and we are acting in a progressive way,'' ECB Executive Board member Lorenzo Bini Smaghi told Italian broadcaster RAI. Still, he also said in Rome today that central banks must not repeat mistakes of the past by cutting rates too much.

“The present crisis is partially due to interest rates that remained at low levels for too long,'' Bini Smaghi said. “At that time, rates were lowered too much in order to stimulate growth. We need to avoid repeating the same mistakes.''

The U.S. Federal Reserve this week reduced its rate to 1 percent from 1.5 percent and the Bank of Japan also lowered borrowing costs. The Bank of England is poised to cut its benchmark rate by half a point to 4 percent on Nov. 6, another survey shows.

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