ECB cuts interest rates to 2.5 %

Recession continued to dictate Europe's monetary policy yesterday when the European Central Bank (ECB) announced the biggest-ever interest rate cut in its history, slashing rates by a further 75 basis points to 2.5 per cent from the previous 3.25 per cent.

The decision, intended to boost investment in the present wary international climate, is the third cut in a row in under three months.

In fact, central banks worldwide are cutting interest rates dramatically to stave off a protracted recession.

Just before the ECB decision in Frankfurt, the Bank of England also reduced its rates to 2 per cent and Sweden's Central Bank cut the key interest rate by a record 1.75 percentage points to 2 per cent.

This decision arrived hours after the publication of new EU GDP figures showing that the eurozone is now officially in recession as it posted the second consecutive negative growth in the third quarter.

According to Eurostat, the EU15 average GDP between July and September contracted by 0.2 per cent, similarly to the second quarter.

Malta is not in recession, although GDP figures for the third quarter have not been published yet. However, it is expected to report growth.

On the other hand, big economies influencing the overall eurozone GDP average, such as Germany, Italy, and Ireland, are already in recession and Spain also reported negative growth in the third quarter.

The biggest economy outside the euro area, the UK, is also in recession.

Announcing the latest cut, ECB president Jean-Claude Trichet said that the global economy is likely to remain weak next year as would demand in eurozone countries. He said that turmoil in financial markets could further weaken the eurozone economy.

"The level of uncertainty remains exceptionally high," he said.