Page last updated at 14:16 GMT, Thursday, 2 April 2009 15:16 UK

ECB reduces rates to record low

Graph showing ECB interest rates

The European Central Bank (ECB) has cut interest rates in the eurozone to a record low of 1.25% from 1.5%.

The cut was smaller than had been expected. Most economists had predicted a half a percentage point cut to 1%.

It is the sixth time the ECB has lowered its key rate since October 2008, when it stood at 4.25%, as it tries to boost economic activity.

The unemployment rate in the eurozone rose to 8.5% in February, its highest level in almost three years.

Analysts who had hoped for a larger cut were disappointed.

"It doesn't make much of a change in the sense that rates are already very low," said Philippe Gijsels, strategist at Fortis in Brussels.

"But it sends the signal that they don't mean business and continue to be behind the curve."

Quantitative easing?

ECB President Jean-Claude Trichet hinted that the bank could lower rates even further.

"I do not exclude that we could in a very measured way go down from the present level," he said.

ECB chief Jean-Claude Trichet
ECB President Jean-Claude Trichet said the bank could make further cuts

However, he did not reveal whether the ECB would follow other central banks in moving towards quantitative easing.

He said the bank would decide whether to take further non-standard measures in its monetary policy at its next meeting in May.

Both the Bank of England and the US Federal Reserve have introduced quantitative easing - whereby they increase the amount of money in the system - as they try to counter the economic downturn.

Gloomy forecasts

It was confirmed in November last year that the eurozone was officially in a recession.

The ECB has said that it expects GDP in the 16-nation bloc to shrink between 2.2% and 3.2% this year.

But the Organisation for Economic Cooperation and Development (OECD) predicted this week that the eurozone economy would contract by 4.1%.

The OECD also warned that the unemployment rate could rise to almost 12% in 2010.

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