ECB verlaagt rente tot historisch laag niveau (en)
EUOBSERVER / BRUSSELS - The European Central Bank cut its main interest rate for the eurozone by 0.5 percent on Thursday (5 March), bringing the current rate to just 1.5 percent, an historic low since the euro's creation in 1999.
"Inflation rates have decreased significantly and will be below two percent in 2009 and 2010," said ECB president Jean-Claude Trichet i adding that the chief causes were falling commodity prices and reduced consumer demand.
Maintaining interest rates "below, but close to two percent" is the ECB's stated aim.
Mr Trichet said the decision was made by "consensus" following the governing council's two-day meeting, indicating the existence of diverging opinions within the council.
Including Thursday's decision, the ECB has now cut interest rate by 2.75 percent since October of last year in an attempt to kick-start the EU's ailing economy, which has suffered a major slow-down following the onset of the financial crisis.
"The governing council expects economic activity to decline in 2009 but then increase gradually," said Mr Trichet.
The meeting was also attended by euro-group president Jean-Claude Juncker i and economy commissioner Joaquin Almunia.
Mr Trichet said reducing national budget deficits was crucial "to maintain public confidence," a point that Mr Almunia has made repeatedly in recent weeks.
He also backed the commission's role in ensuring budget deficits are brought below the three percent of GDP limit laid out in the Growth and Stability Pact that underpins the euro.
"We support the commission initiative to start excessive deficit procedures for some countries," he said.
Quantitative easing
The Bank of England also cut interest rates by 0.5 percent on Thursday, bringing the UK's main interest rate to just 0.5 percent, its lowest level since the bank was founded in 1694.
The bank's president, Mervyn King, also announced their intention to create €170 billion (£150bn) in new money to buy both corporate and government bonds. This unprecedented step is known as "quantitative easing."
Asked whether this was something the ECB might consider, Mr Trichet said "we are already using 'non-standard' measures," referring to the ECB's supply of unlimited liquidity to banks since the crisis began.
"We are discussing other non-standard measures and I don't discount anything," he added, signalling that ECB purchase of euro area corporate bonds could be possible in future.
ING bank chief economist, Peter Vanden Houte, pointed to the potential difficulties the ECB faced in this area.
"In the UK the Bank of England can buy bonds from corporations and it is 'buying British'," he said. However the ECB would have to decide between corporations from different EU states, a highly political decision.
"It makes it much more tricky," Mr Vanden Houte said.
Mr Trichet did not rule out further interest rate cuts this year, but re-affirmed his belief that a zero percent interest rate level contained intrinsic problems.