In its monthly meeting, the European Central Bank (ECB) last week reduced its interest rates by a quarter of a percentage point, taking markets by surprise and providing a welcome boost to borrowers across the eurozone. The 0.25 per cent reduction now brings eurozone interest rates to a record low of 0.25 per cent.
Following a string of disappointing economic data and signs that the eurozone economy could be entering a deflationary phase, pressure had been mounting on the ECB to relax it monetary policy further.
The euro, which has been appreciating in recent months, dropped sharply on the news. Despite low inflation, analysts had expected that the ECB would wait until December to announce stimulus measures. The last time the ECB cut its benchmark interest rate was last May.
In the UK, during its policy meeting for this month, the Bank of England (BOE) left its benchmark interest rate unchanged at 0.5 per cent and made no change to its bond-buying programme. This decision was widely expected and came as no surprise as the BOE had said that it will not consider a rate rise until the unemployment rate fell below seven per cent.
The markets’ focus will now turn to the BOE inflation report, due next week, which will look for signs on how strongly the bank thinks the UK economy is recovering. The BOE has kept interest rates on hold at 0.5 per cent since March 2009.
Finally, in the US, data published by the Commerce Department showed that, during the third quarter of 2013, GDP rose at an annualised rate of 2.8 per cent. This increase was led by a big increase in inventories as household purchases and business investment slowed.
Economists surveyed by Bloomberg News had forecast an increase of two per cent. Consumer spending rose 1.5 per cent, the smallest increase since 2011. This report may stoke expectations that the underlying economy is stronger than the recent mixed data have suggested.
This article was compiled by Bank of Valletta for general information purposes only.