Page last updated at 15:28 GMT, Thursday, 6 November 2008

Eurozone rates lowered to 3.25%

The euro sign is seen in front of the European Central Bank in Frankfurt
Eurozone growth is expected to remain little changed in 2009

The European Central Bank has lowered its eurozone interest rates to 3.25% in an attempt to prevent a recession.

The bank reduced rates by half a percentage point amid increasing signs of slowing growth. The Swiss and Danish central banks did the same.

ECB president Jean-Claude Trichet said further cuts could not be ruled out.

Separately, the International Monetary Fund has forecast that the eurozone economy would shrink by 0.5% in 2009, more than previously estimated.

More cuts?

Speaking after the ECB rate cut, Mr Trichet said that the level of uncertainty stemming from the turmoil on the financial markets remained "extraordinarily high and exceptional challenges lie ahead".

He also said that inflation rates were set to continue falling, and added that the ECB had discussed the possibility of a bigger rate cut on Thursday

The comments leave the ECB room for more rate reductions, especially after the Bank of England slashed UK rates from 4.5% to 3%.

The last time ECB rates stood at 3.25% was in October 2006.

Swiss rate cut

Also on Thursday, Switzerland cut its interest rates by a half percentage point, the second cut in a month.

Denmark's central bank did the same, cutting its key rate by half a percentage point to 5%.

The Swiss National Bank said it was cutting its the target range to 1.5-2.5%, and intended to hold the rate in the middle of this range.

Following the cut in Swiss rates, Henrik Gullberg, an analyst at Deutsche Bank, said: "I am surprised, but it is clear central banks generally are determined to cut rates sharply now when the inflation threat is receding".

The ECB cut rates by half a percentage point in October, as central banks worldwide, including the US Federal Reserve and the Bank of England, did the same in light of the worsening financial crisis.


In July this year, the ECB had raised rates to try to put a lid on growing inflationary pressures, but since then these pressures have eased considerably largely thanks to a sharp fall in oil prices.

While inflation - a main focus of the ECB - is at 3.2%, it is coming closer to the target of under 2% following the recent contraction.

"Inflation may go down to below 2.5% by year end," Natixis economist Ceric Thillier forecast.

A series of economic data released this week has shown how economies across the eurozone are slowing.

On Wednesday, figures showed that retail spending across the eurozone dropped in September, as consumers tightened their belts.

Retail sales dropped 0.2% from August, and by 1.6% compared with September 2007.

On Thursday, the IMF predicted in its latest World Economic Outlook that the eurozone would shrink by 0.5% next year, against an earlier prediction of 0.2% growth.

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