ECB lowers interest rate

Bank interest rates in Malta should drop further after the European Central Bank decided to cut the key rate in the euro area by 0.5 per cent to 3.25 per cent, the lowest in the past two years.

The cut is the second in less than a month and will be welcomed by those who have a loan or are in talks to borrow money.

The ECB is widely expected to cut interest rates again next month, as the euro area enters a recession and inflation is not the concern it was a few months ago.

Indeed, ECB President Jean-Claude Trichet did not exclude further cuts during a press conference in Frankfurt yesterday to announce the decision of its governing board, which includes the Governor of Malta's Central Bank.

"I don't exclude that we could decrease rates again... but we are not pre-committed in any respect," said.

"We will do whatever is necessary to take into account the situation as it will unfold progressively."

Some economic analysts are predicting that the rate will fall to a possible 2.5 per cent by next April.

The ECB's move follows the Bank of England's decision to slash the British interest rate by 150 basis points to three per cent, a much steeper cut than expected.

Easing inflation in Europe, which fell from a four per cent high to 3.2 per cent last month, gave the ECB room to cut rates, economists said. The ECB targets annual inflation of just below two per cent.

The European Commission last Monday said the eurozone was in recession and predicted that economic growth would come to a standstill next year.