ECB slashes rates to new low

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The Independent Online

The European Central Bank has slashed interest rates by half a percentage point to a record low in an attempt to shore up the dramatically weakening eurozone economy.

The ECB cut its main interest rate to 1.5 per cent, taking reductions in the past five months to 275 basis points. Borrowing costs are now at their lowest since the euro was launched in 1999.

Jean-Claude Trichet, the ECB's president, has taken a tougher line on monetary policy than the UK and the US, which have both slashed rates close to zero. But the ECB acted after updated forecasts showed the region's economy contracting far faster than previously indicated by projections in December.

Eurozone gross domestic product contracted by 1.5 per cent in the fourth quarter of 2008, the biggest quarterly fall on record.

Attention will now focus on whether the ECB will follow the UK in increasing the money supply through unconventional means such as buying securities.

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