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Eurozone rates lowered to 3.25% | Eurozone rates lowered to 3.25% |
(about 1 hour 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 reduced rates by half a percentage point amid increasing signs of slowing growth. The Swiss and Danish central banks did the same. | |
ECB president Jean-Claude Trichet said further cuts could not be ruled out. | |
Separately, the International Monetary Fund has forecast that the eurozone economy would shrink by 0.5% in 2009, more than previously estimated. | |
More cuts? | 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". | 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 | 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%. |
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. |
Swiss rate cut | Swiss rate cut |
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. |
Denmark's central bank did the same, cutting its key rate by half a percentage point to 5%. | |
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. |
Slowdown | Slowdown |
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. |
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. | 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. |