ECB announces record rate cut
ELITSA VUCHEVA
04.12.2008 @ 17:39 CET
EUOBSERVER / BRUSSELS - The European Central Bank on Thursday (4 December) cut the cost of borrowing in the 15-strong euro area by a record 75 basis points to 2.50 percent, with the institution's president, Jean-Claude Trichet, saying the eurozone's economy is expected to shrink next year, following a global trend.
"Global and euro-area demand are likely to be dampened for a protracted period of time," said Mr Trichet. (Photo: The Council of the European Union)
The cut is "obviously an important one, but it was what we had to do," Mr Trichet said at a press conference in Brussels.
"We considered that it was again appropriate taking into account a further alleviation to upside risks to price stability," he added.
The move comes after it was confirmed that the euro area's economy shrank by 0.2 percent in both the second and third quarters of this year, entering its first-ever recession.
The ECB president also acknowledged the slowdown in the eurozone economy was set to continue.
"Global and euro-area demand are likely to be dampened for a protracted period of time," he said.
Mr Trichet said inflation rates in the euro countries had moderated, while stressing it was mainly due to "the fall in commodity prices and a significant slowdown in economic activity," adding that global demand was expected to continue to weaken.
Prior to today's decision to lower its benchmark lending rate, the ECB had already made two 50-point cuts since October.
Meanwhile, the Bank of England also cut its main interest rate today from 3 to 2 percent its lowest level since 1951.
Earlier in the day, the Swedish central bank also cut its rate by a record 175 basis points to 2 percent.