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Tuesday 14th of July 2009
April 2, 2009

Euro zone rate cut less than expected


by Peter Charalambous
”Euro

The main interest rate has been cut by the European Central Bank (ECB) by just 0.25 percent, which is a conservative measure that has stunned the financial markets.

It does, however, mean that there is a greater possibility that further interest rate reductions may follow, as the ECB President Jean-Claude Trichet has said that the Governing Council will then decide whether further changes to monetary policy will be made.

Most analysts had predicted that the rate cut would be in the region of 0.5 to 1 percent. However, the ECB has lowered borrowing costs six times since October 2008.

The latest rate cut brings a new record low for interest rates to 1.25 percent, with the focus on maintaining price stability in the euro region.

Due to the severe nature of the global economic downturn, the ECB has made very small but constant adjustments to interest rates.

Demand in both the euro zone, and within the global economy as a whole, is likely to remain weak at least for another year before recovery at the end of 2010.

There were some positive indicators for the ECB, namely with inflation targets and expectations which, at least for the medium term, are sticking close to the Governing Council’s aim of remaining below, but near the 2 percent mark.

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