The European Central Bank cut interest rates to 2 percent from 2.5 percent in a move that was widely expected. This cut brings the eurozone borrowing costs to a three year low after four consecutive cuts.
Other major banks, including the US Federal Reserve and the Bank of England, have also cut rates in recent weeks to near all-time lows. Both banks have suggested their rates could go to zero, as the US is practically there already. The ECB cuts came after the most recent inflation reports indicated that the rate was lower than the bank’s target of 2 percent.
ECB president Jean-Claude Trichet cautioned against expecting further cuts as he suggested that inflationary pressures could well resume later in the year: “Headline figures will possibly reach very low levels at mid-year but inflation rates are expected to increase again in the second half of this year … We consider the risks to price stability to be broadly balanced.”
