ECB Cuts Refinancing Rate to 2.0% From 2.5%

January 15, 2009

A 50-basis point cut in the European Central Bank’s main policy rate was consistent with the market consensus and returns the rate level to its record low of 2.0%, which was also the rate for 7 months in 1999. Today’s announcement follows cuts of 50 basis points each in October and November and 75 basis points in December. From December 2005 to July 2008, the ECB engineered nine rate increases of 25 basis points each. After peaking at 4.0% this past July, CPI inflation has receded rapidly to a below-target level 1.6% as of December. Softer commodity prices and an astonishingly rapid and deep recession point to a further retreat of inflation, and the possibility of sub-zero 12-month readings later this year is looking increasingly certain. ECB President Trichet will explain the central bank’s latest thinking in a press conference starting at 13:30 GMT.



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