Europe and US synchronise rate cuts
LUCIA KUBOSOVA
08.10.2008 @ 17:18 CET
EUOBSERVER / BRUSSELS - The European Central Bank (ECB) has moved to cut interest rates in the 15 country-strong eurozone in a co-ordinated move with five other major central banks, in a bid to slow Europe's economic downturn.
The Frankfurt-based ECB cut its benchmark rate from 4.25 percent to 3.75 percent on Wednesday (8 October). It is the first rate cut since June 2003 and comes sooner than analysts expected.
ECB meeting room - the European bank held an teleconference on the rate cut (Photo: European Central Bank)
On the same day, the US Federal Reserve cut rates from 2 percent to 1.5 percent. The Bank of England, as well as the central banks of Canada, Sweden and Switzerland all took similar action.
"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," the ECB said in a statement.
"Some easing of global monetary conditions is therefore warranted," it added.
Frankfurt's move came after a teleconference with the other central banks and resembles a similar approach taken in September 2001, shortly after the terrorist attacks on the US, when both the ECB and the Federal Reserve slashed rates in tandem.
Hours before the decision on Wednesday, the EU's statistical office Eurostat published a fresh report reflecting the concrete consequences of the financial crisis on the economy.
It showed that the eurozone's GDP shrank by 0.2 percent compared to the first three months of this year while the whole European Union's economy did not change in comparison to the same period.
Analysts predict that a decline in the 15-strong monetary union will be reported also in the third quarter of 2008 which would mean that the euro bloc would be officially in recession.
By comparison, the US economy grew in the second quarter 0.7 percent while Japan's GDP dropped by 0.7 percent.
