The European Central Bank has cut interest rates by just 0.25 percent to 1.25 percent, disappointing analysts who had expected a bigger reduction.
Trying to stimulate the economies of the 16 countries using the single currency, the ECB also reduced the rate at which commercial banks deposit money with the ECB hoping to encourage them to lend more to businesses and individuals. Asked if the bank might now follow the US, UK and Japanese examples and in essence print more money to stimulate economic growth, ECB President Jean-Claude Trichet’s reply was vague. “I don’t want to pre-empt in any respect what we could say; be sure that we would consider that by so doing we will optimise the appropriate help that we can offer to our economy, on enhanced credit support in particular,” Trichet said. Europe’s stock markets reacted positively to the interest rate cut and share prices also rose in the hope that economic downturn is moderating. Banks, mining and oil companies and carmakers were the top gainers. The price of crude oil soared and the rate cut caused the value of the euro to rise against the dollar.