Page last updated at 16:17 GMT, Thursday, 4 December 2008

ECB cuts eurozone rates to 2.5%

Euro symbol
The euro zone is cutting interest rates aggressively to shore up growth

The European Central Bank has delivered a record rate cut, lowering the key interest rate for the 15 countries that use the euro to 2.5% from 3.25%.

The cost of borrowing was cut for a third consecutive month as the central bank tries to bolster the eurozone's faltering economies.

Central banks worldwide are cutting interest rates dramatically to stave off a protracted recession.

Earlier, the Bank of England reduced interest rates to 2% from 3%.

Sweden's central bank cut its key interest rate by a record 1.75 percentage points to 2% on Thursday and monetary policymakers in Denmark and New Zealand also reduced the cost of borrowing.

Battling recession

Official statistics have confirmed that the eurozone is in a recession and recent economic data has been grim.

The level of uncertainty remains exceptionally high
Jean-Claude Trichet, ECB president

The cut was the most aggressive in the ECB's 10-year history.

"The ECB has been forced to abandon its gradual monetary policy approach as a wide range of economic indicators in the eurozone are in freefall," said Jörg Radeke, an economist at the Centre for Economic and Business Research.

ECB president Jean-Claude Trichet said the global economy was likely to remain weak next year, as was demand in eurozone countries.

He said that turmoil on financial markets could further weaken the eurozone economy.

"The level of uncertainty remains exceptionally high," he said.

Mr Trichet also said that inflationary pressures were diminishing.

Further fall?

Some analysts predict that the cost of borrowing in the eurozone could fall further.

"The recession in the eurozone seems to worsen by the day, while at the same time inflation is no longer a concern," said Carsten Brzeski at ING Financial Markets.

"Apparently, the ECB is willing to do everything necessary to get ahead of the curve."

Many European countries have unveiled stimulus plans to help boost growth.

Earlier, French President Nicolas Sarkozy detailed a 26bn-euro ($33bn; £23bn) stimulus plan to enable France to fend off financial crisis.

The member states of the eurozone are France, Italy, Germany, Belgium, the Irish Republic, the Netherlands, Luxembourg, Spain, Portugal, Slovenia, Malta, Greece, Austria, Finland and Cyprus.

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