Brussels, 15/01/2009 (Agence Europe) - At its meeting in Frankfurt on Thursday 15 January, the Governing Council of the European Central Bank (ECB) decided to reduce the interest rate applied to main refinancing operations within the Eurosystem by 50 base points to 2%. In all, the rate has been reduced by 225 base points since 8 October 2008. The main rate has thus been lowered to the all-time low in the ECB's 10-year existence: it was at this level between June 2003 and December 2005. The interest rate on the marginal lending facility has been set at 3% and the interest rate on the deposit facility at 1%. In his press conference, ECB President Jean-Claude Trichet hinted that there would be no changes in February, but probably at the important March meeting of the ECB Governing Board. The ECB will, at that time, publish new growth and inflation forecasts.
Trichet said that “inflationary pressures have continued to diminish”, owing, in particular, to the further weakening in the economic outlook, justifying the decision to reduce the main interest rate by 50 base points. Looking forward, “we continue to expect inflation rates in the euro area to be in line with price stability over the medium term,” he stated. The Governing Council would, he said, continue to keep inflation expectations firmly anchored in line with its medium-term objective of inflation rates below, but close to, 2%. In December 2008, inflation fell to 1.6% over the year, well below the 2% ceiling. This rate of inflation, confirmed on the same day by Eurostat, is the lowest for 26 months. The slowing of inflation is mainly due to the fall in oil prices, which dropped by 4.7% in December. The ECB expects “sharp fluctuation” in inflation in 2009. In the medium term, however, inflation is likely to remain in line with price stability. Trichet said that the inflation rate would probably increase again in the second half of the year.
Economic news in the euro area had been alarming since the start of the year, with figures regularly worse than expected, bringing fears of a more serious recession. Trichet noted that, since September 2008, financial market turmoil had intensified and broadened. The effect was further weakening of economic activity throughout the world, including in the euro area. In response to questions from the press, Trichet said he saw 2010 as the year when the world and European economy would recover. He also felt that, with time, the euro area would reap the benefits of the policy measures announced over the last few weeks. The ECB Governing Council welcomed the European Council confirmation in December of its full commitment to sustainable public finances. The current economic situation, said Trichet, called for particular prudence with regard to the adoption of extensive fiscal stimulus measures. (L.C./transl.rt)