ECB cuts interest rates

The European Central Bank today cut interest rates for the first time in three months, but the quarter-percentage point reduction was less than some economists had expected.

The bank’s 18-member governing council cut the key refinancing rate to 2.5% from 2.75%, where it had stood since a half-point cut on December 5.

Bank president Wim Duisenberg appeared to prepare the ground for a cut at last month’s meeting of the Group of Seven leading industrial countries, questioning the prospects for an economic recovery this year and saying the ECB “would not hesitate to act” if new signs of weakness emerged.

The bank’s December 5 cut was aimed at restoring confidence in an environment of uncertainty over Iraq, and Duisenberg echoed that argument at the G7 meeting, saying: “Uncertainties about future developments seem to have increased further more recently.”

EU figures released earlier this week showed unemployment in the 12 countries using the euro – and where the ECB sets monetary policy – reaching its highest level in almost two years as it rose to 8.6% in January from 8.5% in December.

Fears about job security have helped push consumer confidence in the 12 countries using the euro to a five-year low, making it less likely consumer spending will spur recovery.