ECB could cut rates at next meeting: Trichet

By Jason Webb

MADRID (Reuters) - The European Central Bank could cut interest rates for the second time in less than a month next week, ECB President Jean-Claude Trichet said on Monday.

"I consider possible that the Governing Council will decrease interest rates once again at its next meeting on November 6. It is not a certainty, it is a possibility," Trichet said in a speech at a banking conference in Madrid.

Although he declined comment on the size of any move, analysts firmed bets on a repeat of the 50 basis point reduction on October 8, when the ECB acted with other central banks in a bid to stem the intensifying financial crisis.

Trichet said financial market turmoil was putting pressure on economic growth in the short-term and this was also easing inflation fears.

Still, he stressed that the ECB would only reduce rates from their current level of 3.75 percent if the inflation outlook justified such a move.

"Taking into account the recent decline in commodity prices together with the substantial weakening demand that has emerged lately, upside risks to price stability have diminished," he said.

"Any new monetary policy stance that we could decide on at our next regular monetary policy meeting must continue to allow us to tell our 320 million fellow citizens: 'you can be confident. We will deliver price stability in line with our definition of less than but close to 2 percent in the medium term'," Trichet said.

Global stock markets have been taking a beating in recent days. Around Europe the France's CAC and UK's FTSE indexes were down again by 1645 GMT. Germany's DAX bucked the trend but fresh German economic data made ugly reading as corporate sentiment fell more than expected to its lowest level since May 2003.

ECB figures showed corporate borrowing decelerated to its slowest pace in two years while euro zone PMI data showed services activity remained near a five-year low in September.

A QUESTION OF SIZE

Euribor interest rate futures rose on his comments and analysts, many of whom had been tipping a cut next week, said there was now a strong argument for a 50 basis point reduction, and less chance of another coordinated cut.

"(This) can be seen as a clear signal ... that the Council has concluded that there will be a policy rate cut on November 6th," said Barclays Capital economist Julian Callow.

"The main remaining question is the size of such action ... we would be surprised if the ECB did not go along with the markets' current expectation, i.e. to lower the policy rate by 50 basis points on November 6."

Trichet said markets should take on board the exceptional steps the ECB was taking to keep liquidity flowing, including promising banks as much money as they wanted at fixed interest rates. But he expected this would take some time.

As he was speaking, the ECB announced it would offer funds in its next 3-month refinancing tender at its base rate of 3.75 percent, well below the 4.912 percent that three month interbank markets were trading at on Monday.