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Saturday 07th of March 2009
March 5, 2009

Euro zone interest rates reduced to record low of 1.5%


by Kay Murchie
”Euro

In a bid to fight off Europe’s worst recession in five decades, the European Central Bank (ECB) today opted to cut interest rates by 0.5% to 1.5% - the lowest since it started setting rates in January 1999.

The cut is the fifth in nearly as many months but is still 100 basis points above those in the UK after the Bank of England cut rates to 0.5% today.

The Bank of England is set to proceed with quantitative easing (also known as printing money) - a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital. The aim is to increase lending levels in commercial banks.

However, the ECB has so far rejected this option but further details of the euro zone’s plans for the economy will be set out in a press conference in Frankfurt later today.

The euro zone, as a whole, entered recession in November following two consecutive quarters of declining output.

Meanwhile, inflation in the euro zone experienced a 1.1% rise in January which has prompted today’s cut. Currently inflation still remains on target and the fact that most economists are predicting that the rate will remain below 2% until 2010 leads several economists to believe that there is a chance the ECB will cut rates to zero next year.

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