ECB cuts rates to historic low to spur growth

April 2nd, 2009 - 7:30 pm ICT by IANS  

Frankfurt, April 2 (DPA) Falling inflation and a deepening recession paved the way for the European Central Bank (ECB) to deliver another rate cut Thursday, trimming borrowing costs to an historic low of 1.25 percent.
The 25-basis-points reduction, less than the half-percentage-point analysts had expected, brought the total rate cuts made by the ECB in the 16-member eurozone since October to 300 basis points, reflecting its effort to spur economic growth.

The cut - the ECB’s sixth since October - coincided with Thursday’s Group of 20 summit of leading economic powers in London, which is aimed at bolstering global economic confidence and revamping world financial rules.

Economists, however, are divided on whether borrowing costs at 1.25 percent will bring the ECB’s current rate-cutting cycle to an end or if the bank will continue easing monetary policy.

The scale of the economic downturn has meant central banks around the world believe they can no longer rely solely on interest rates and have been forced to revert to so-called unconventional measures to combat the global recession.

Having effectively rejected the ECB moving to a zero interest rate regime, bank chief Jean-Claude Trichet has indicated that the Frankfurt-based ECB has been considering unconventional measures.

This could possibly include implementing a so-called quantitative easing policy, which is effectively printing money.

Many analysts, however, believe it could still take a while before the ECB follows the world’s other leading central banks - the US Federal Reserve, the Bank of Japan and the Bank of England - and take steps to boost the money supply.

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