ECB forced into interest rate move amid eurozone struggle | World | News
The European Central Bank (ECB) has taken a landmark decision to cut interest rates again – the first time it has made back-to-back interest rate cuts since the 2011 eurozone crisis.
Germany is teetering on the brink of recession, while inflation across the 20-member zone falls. Now the ECB has opted to reduce interest rates by another quarter of a percent, down to 3.25 percent.
The last rate cut, to 3.5 percent, only came in September, and this latest cut is the third this year.
Christine Lagarde, ECB President, said the reason for the most recent reduction is the surprising and sharp fall in inflation.
From August to September, inflation tumbled from 2.2 percent to 1.7 percent – faster than the ECB expected.
Ms Lagarde said there were clear signs that the eurozone was weakening. France’s Olympic bounce has petered out, while Italy and Spain’s economies appear sluggish.
Meanwhile, Germany is facing recession amid political turmoil in the country. In fact, Berlin could be on the brink of its first two-year recession in twenty years.
Ms Lagarde said: “The latest data is all heading in the same direction, downwards, and points to more sluggish growth.”
Upon announcing the move, the ECB said the reduction in rates was based on “an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission”.
In Britain, the expectation is the Bank of England will reduce rates by 0.25 percent from 5 percent when it meets in November.
