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Euro zone borrowing costs cut to two percent

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Euro zone borrowing costs cut to two percent


The European Central Bank has lowered interest rates again.

Differing comments from bank policymakers in recent days had left the financial markets unsure of how deep a cut to expect. In the end the benchmark rate dropped from 2.5 percent to two percent. It was the fourth month running the cost of borrowing in the 16 countries using the euro has been reduced. ECB president Jean-Claude Trichet explained the cut: “Today’s decision takes into account that inflationary pressures have continued to diminish, owing, in particular, to the further weakening in the economic outlook, which adds clear further evidence to the assessment that the euro area is experiencing a significant slowdown largely related to the effects of the intensification and broadening of the financial turmoil.” The ECB’s benchmark rate has been at two per cent before but never lower. However even with this cut, euro-zone rates are still higher than in other Group of Seven economies, with Britain and Canada at 1.5 percent, and Japan and the US near zero. The euro zone has been in its first ever recession since last year and all the economic indicators are that it will remain in a slump for most of this year. Economists expect inflation to fall further and ECB President Jean-Claude Trichet said inflation risks are “broadly balanced,” signalling that he would prefer not to maintain the current pace of interest-rate cuts. “Our next important rendezvous for monetary policy will be our March meeting, where we will have substantial elements of new information,” Trichet said.

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