ECB cuts interest rates again
'Demand to remain weak'
The worsening economic scenario in the 16-member euro area has prompted the European Central Bank to lower key interest rates by another 25 basis points.
The decision means the interest rate on the main refinancing operations of the Eurosystem will drop to just 1.25 per cent, a record low since the introduction of the euro.
The new measure will come into effect on Wednesday. Although European banks normally adjust their rates according to the ECB decisions, it is not known yet whether Maltese banks will follow suit.
Last month, when the ECB announced rate cuts, Malta's major banks declared they were not going to cut their lending rates as they deemed that the rates in Malta were already low enough.
Yesterday's additional cut means the interest rate on the main refinancing operations of the Eurosystem has now been reduced by 300 basis points (three per cent) since last October.
Addressing a press conference in Frankfurt at the end of an ECB meeting, ECB president Jean-Claude Trichet said the decision "takes into account the expectation that price pressures will remain subdued, reflecting the substantial past fall in commodity prices and the marked weakening of economic activity".
"Both global and euro area demand are likely to remain very weak over 2009, before gradually recovering in the course of 2010," he said.
Mr Trichet also announced that in May the bank's governing council meeting would discuss possible "non-standard measures" for supporting the eurozone economy. He said the bank was already using non-standard measures, citing the example of the unlimited liquidity line offered to commercial banks.
"We will optimise the appropriate help that we can offer to our economy," he said. He added that this applied "in particular" to enhanced credit support.
The Maltese Central Bank, whose Governor sits on the ECB's board, has not reacted to the decision by local banks not to cut interest rates. Questions sent by The Times last month remained unanswered.