ECB May Be Forced to Lower Rates If Crisis Worsens, RBS Says

The European Central Bank may come under pressure to cut interest rates amid a global economic slowdown and a deterioration of the region’s debt crisis, Royal Bank of Scotland Group Plc economists said.

“With other central banks increasingly under pressure to respond to their own renewed challenges, it is not inconceivable to see the ECB forced to cut interest rates,” RBS’s Jacques Cailloux and Nick Matthews wrote in a research note to clients dated yesterday. “This could happen if other central banks engage in additional quantitative easing” or if a “total seizing-up of funding markets” is observed.

The London-based economists pushed back their forecast for higher ECB interest rates to the third quarter of next year from October, “fully recognizing the high level of uncertainty and conditionality of the call.”

“The resumption of the normalization process will be dictated by the speed and efficacy of the policy response to stabilize the financial system,” Cailloux and Matthews wrote.

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