Trichet Says Coordinated Rate Cut Would Have Risked Panic Effect

(Bloomberg) -- A coordinated interest-rate cut this week could have induced panic and wasn't warranted, former European Central Bank President Jean-Claude Trichet said.

The Frenchman, who led the euro-zone institution during the 2008 financial crisis and participated in joint easing with the U.S. Federal Reserve after the collapse of Lehman Brothers, suggested in a Bloomberg Television interview that you can't really compare that episode with the coronavirus outbreak.

“I have experienced myself coordinated action,” he told Tom Keene and Guy Johnson on Thursday. “At the time, the drama was unfolding in a much worse manner, if I may. The idea that we had an absolute necessity to coordinate action at the level of the major central banks was something very natural.”

The Federal Reserve cut its interest rate by half a percentage point on Tuesday, acting alone after Group of Seven officials agreed on a joint statement that stopped short of promising coordinated action. Joint monetary stimulus would have been an overreaction, Trichet said.

“I am not sure it was really more appropriate,” he said. “It could have also had an impact of panicking, if I may, or giving the message of too much of a panic.”

The ECB meets next Thursday, and markets are pricing in a 10 basis-point cut that would bring borrowing costs deeper below zero. President Christine Lagarde has said the institution is ready to take appropriate and targeted measures.

Trichet said what looked initially like a supply shock that could lead to a V-shaped recovery is now being accompanied by a hit to demand as well. That's why fiscal authorities should step in more resolutely, he said.

In the euro area, making sure liquidity is available to all is more important that the price of interest rates, Trichet said, adding he had no recommendations for what the ECB should do.

“The Governing Council has taken extremely wise decisions since the crisis so I have full confidence they will do what is appropriate in the case,” Trichet said. “But it's clear that the availability of credit will be something essential all over the euro area, whatever the level of interest rates.”

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Craig Stirling, Catherine Bosley

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