The stark reduction, which was greater than most analysts had predicted, shows the the ECB is serious about fighting the financial crisis, which has plunged Europe into a recession. Lower interest rates tend to stimulate the economy by loosening credit markets and making borrowing cheaper. Ever since the New York investment bank Lehman Brothers filed for bankruptcy on Sept. 15, credit markets have been extremely reluctant to take on any additional risk, making it virtually impossible for many companies to secure loans. Although most economists had predicted only a half-point cut from the ECB, not all were surprised that the central bankers decided to take such drastic action. "Given how weak the economic data has been, the rate cuts are not so surprising," said Rainer Sartoris, an economist at HSBC Trinkaus, in an interview with Reuters. "They needed to have rates come down more quickly than before." Central banks in the UK and in Sweden announced even greater rate cuts, stealing some of the ECB's thunder. Rainer Guntermann, an economist at Dresdner Kleinwort told Reuters that the ECB's cut, although the greatest in its history, is less impressive when compared to the action taken in Stockholm and London. "They clearly have an even more dramatic assessment of global conditions," he said. British central bankers cut their rate by a full percentage point to just two percent, leaving rates at their lowest levels since 1939.
Although most economists had predicted only a half-point cut from the ECB, not all were surprised that the central bankers decided to take such drastic action. "Given how weak the economic data has been, the rate cuts are not so surprising," said Rainer Sartoris, an economist at HSBC Trinkaus, in an interview with Reuters. "They needed to have rates come down more quickly than before."
Central banks in the UK and in Sweden announced even greater rate cuts, stealing some of the ECB's thunder. Rainer Guntermann, an economist at Dresdner Kleinwort told Reuters that the ECB's cut, although the greatest in its history, is less impressive when compared to the action taken in Stockholm and London. "They clearly have an even more dramatic assessment of global conditions," he said.
British central bankers cut their rate by a full percentage point to just two percent, leaving rates at their lowest levels since 1939.
Interest rates were slashed on a historic scale across Europe on Thursday as central banks reacted aggressively to the sudden and brutal deterioration in the economic outlook since the autumn.The European Central Bank announced a three-quarters of a percentage point cut in its main policy interest rate to 2.5% - its largest cut ever - just hours after Sweden's central bank surprised markets by reducing the country's official borrowing costs by a record 175 basis points. The Bank of England slashed its rates by another 1 percentage point to 2 per cent, equal to the lowest rate since the central bank was founded in 1694.Even though none of the European central banks gave any encouragement to traders betting on further rate cuts, financial markets have already priced in another 0.5 percentage point reduction in the eurozone by February, and a fall to 1 per cent in the UK in the near future.
Interest rates were slashed on a historic scale across Europe on Thursday as central banks reacted aggressively to the sudden and brutal deterioration in the economic outlook since the autumn.
The European Central Bank announced a three-quarters of a percentage point cut in its main policy interest rate to 2.5% - its largest cut ever - just hours after Sweden's central bank surprised markets by reducing the country's official borrowing costs by a record 175 basis points. The Bank of England slashed its rates by another 1 percentage point to 2 per cent, equal to the lowest rate since the central bank was founded in 1694.
Even though none of the European central banks gave any encouragement to traders betting on further rate cuts, financial markets have already priced in another 0.5 percentage point reduction in the eurozone by February, and a fall to 1 per cent in the UK in the near future.
