The European Central Bank (ECB) has cut interest rates to the lowest since at least 1948 in any of the dozen nations using the euro, as the single European currency's appreciation saps economic growth.
The ECB lowered the benchmark refinancing rate by half a point to 2%, the third cut since December, following a meeting of its 18 council members in Frankfurt. The Bank of England kept rates unchanged at a 48-year low yesterday, and Sweden's central bank cut borrowing costs to the lowest since 1999.
The region's $8 trillion economy is stagnating, as the euro's 24% appreciation against the US dollar in the past year hurts profitability at companies such as Volkswagen AG and Alcatel SA. Politicians including Italian Premier Silvio Berlusconi have urged the ECB to cut rates as the euro's appreciation helps push inflation below the bank's 2% ceiling.
"This helps the economy but the signs of a recovery are not very strong," said Karsten Junius, an economist at Dekabank in Frankfurt. "We could see another cut in the second half."
ECB President Wim Duisenberg on Tuesday had said there were still "downside risks" to economic growth this year. The European Commission yesterday said the euro economy may continue stagnating in the second and third quarters, after stalling in the first three months. European service businesses, the biggest part of the area's economy, shrank for a fourth month in May.
"If we see a recovery, it won't be until the end of the year or the beginning of the next," said Wolfgang Leese, chief executive officer of Salzgitter AG, Germany's second-largest steel plant. Lower rates are needed "so that people can start investing again."
The ECB has now pared interest rates seven times since the start of 2001, compared to 12 reductions by the U.S. Federal Reserve in the same period. The Fed's benchmark interest rate currency stands at 1.25%, a 41-year low.
Yesterday's cut takes the ECB's benchmark rate to the lowest for any country in the euro region since at least 1948, the year the deutsche mark was introduced and Europe first received money from the Marshall Plan.
The ECB took charge of monetary policy in 1999, when the euro replaced the mark and other European currencies.
Slowing inflation gave the ECB the leeway to act. The annual rate of consumer price increases slowed to 1.9% last month, the lowest in almost a year, as the euro's advance made imports cheaper, oil prices declined and the stagnant economy hurt the companies' ability to raise prices.
"There is now a small price war" as slowing growth hurts consumer spending, says Yves Dumont, chairman of champagne maker Laurent-Perrier SA.
The International Monetary Fund this week said it expects the euro region's inflation rate to fall under 1.5% next year.
Pentru alte știri, analize, articole și informații din business în timp real urmărește Ziarul Financiar pe WhatsApp Channels
