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Eurozone rates lowered to 3.25% Eurozone rates lowered to 3.25%
(29 minutes later)
The European Central Bank has lowered its eurozone interest rates to 3.25% in an attempt to prevent a recession.The European Central Bank has lowered its eurozone interest rates to 3.25% in an attempt to prevent a recession.
The bank has reduced rates by half a percentage point from 3.75% amid increasing signs of slowing growth. The bank reduced rates by half a percentage point from 3.75% amid increasing signs of slowing growth.
ECB president Jean-Claude Trichet said "exceptional challenges" lie ahead and inflation rates were set to go down. After the rate cut, ECB president Jean-Claude Trichet said: "I don't exclude that we could decrease rates again."
Also on Thursday, the International Monetary Fund (IMF) forecast that the eurozone's economy would shrink by 0.5% in 2009.
More cuts?
Speaking after the ECB rate cut, Mr Trichet said that the level of uncertainty stemming from the turmoil on the financial markets remained "extraordinarily high and exceptional challenges lie ahead".
He also said that inflation rates were set to continue falling, and added that the ECB had discussed the possibility of a bigger rate cut on Thursday
The comments leave the ECB room for more rate reductions, especially after the Bank of England slashed UK rates from 4.5% to 3%.The comments leave the ECB room for more rate reductions, especially after the Bank of England slashed UK rates from 4.5% to 3%.
ECB joined other central banks in cutting rates last month but some have argued that it has not acted swiftly enough to stem the growing crisis.
The last time ECB rates stood at 3.25% was in October 2006.The last time ECB rates stood at 3.25% was in October 2006.
Further cuts? Swiss rate cut
Some analysts had expected the ECB to make a sharper cut after the UK's dramatic reduction.
Mr Trichet said the ECB had discussed the possibility of a bigger rate cut on Thursday.
Some analysts say a further rate cut at the next ECB meeting in December is possible.
Also on Thursday, Switzerland cut its interest rates by a half percentage point, the second cut in a month.Also on Thursday, Switzerland cut its interest rates by a half percentage point, the second cut in a month.
The Swiss National Bank said it was cutting its the target range to 1.5-2.5%, and intended to hold the rate in the middle of this range.The Swiss National Bank said it was cutting its the target range to 1.5-2.5%, and intended to hold the rate in the middle of this range.
Following the cut in Swiss rates, Henrik Gullberg, an analyst at Deutsche Bank, said: "I am surprised, but it is clear central banks generally are determined to cut rates sharply now when the inflation threat is receding".Following the cut in Swiss rates, Henrik Gullberg, an analyst at Deutsche Bank, said: "I am surprised, but it is clear central banks generally are determined to cut rates sharply now when the inflation threat is receding".
The ECB cut rates by half a percentage point in October, as central banks worldwide, including the US Federal Reserve and the Bank of England, did the same in light of the worsening financial crisis.The ECB cut rates by half a percentage point in October, as central banks worldwide, including the US Federal Reserve and the Bank of England, did the same in light of the worsening financial crisis.
SlowdownSlowdown
In July this year, the ECB had raised rates to try to put a lid on growing inflationary pressures, but since then these pressures have eased considerably largely thanks to a sharp fall in oil prices.In July this year, the ECB had raised rates to try to put a lid on growing inflationary pressures, but since then these pressures have eased considerably largely thanks to a sharp fall in oil prices.
While inflation - a main focus of the ECB - is at 3.2%, it is coming closer to the target of under 2% following the recent contraction.While inflation - a main focus of the ECB - is at 3.2%, it is coming closer to the target of under 2% following the recent contraction.
"Inflation may go down to below 2.5% by year end," Natixis economist Ceric Thillier forecast."Inflation may go down to below 2.5% by year end," Natixis economist Ceric Thillier forecast.
A series of economic data released this week has shown how economies across the eurozone are slowing.A series of economic data released this week has shown how economies across the eurozone are slowing.
On Wednesday, figures showed that retail spending across the eurozone dropped in September, as consumers tightened their belts.On Wednesday, figures showed that retail spending across the eurozone dropped in September, as consumers tightened their belts.
Retail sales dropped 0.2% from August, and by 1.6% compared with September 2007.Retail sales dropped 0.2% from August, and by 1.6% compared with September 2007.
And on Monday, the European Commission predicted that the 15-nation area would hardly grow in 2009, expanding 0.1%. On Thursday, the IMF predicted in its latest World Economic Outlook that the eurozone would shrink by 0.5% next year, against an earlier prediction of 0.2% growth.
European indexes were lower in early afternoon trade following both the UK and ECB rate cuts.
The UK's FTSE 100 index was 1.9% lower, France's Cac 40 dropped 1.8% and Germany's Dax was down 2.1%.