European Central Bank Cuts Interest Rates To 1%

At today's meeting the Governing Council of the European Central Bank took the following monetary policy decisions:

The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 1.00%, starting from the operation to be settled on 13 May 2009. The interest rate on the marginal lending facility will be decreased by 50 basis points to 1.75%, with effect from 13 May 2009. The interest rate on the deposit facility will remain unchanged at 0.25%.

The President of the European Central Bank will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

The 16-country eurozone and especially Germany, its largest member, has been badly hit by the collapse in global demand since the failure of Lehman Brothers last September. Earlier this week, the European Commission forecast the eurozone would contract by 4 per cent this year – significantly faster than the US – with a recovery not expected until 2010.

Consider the following fact, which shows how aggressively the European Central Bank has been working in cutting the interest rates to fight against the Eurozone economic recession. Since October, the ECB has cut its main interest rate by 325 basis points. But it has been among the last of the world’s main central banks to reach a point at which it feels official borrowing costs cannot go lower.