Eurozone interest rates slashed to historic low[fr][de] 

The ECB Governing Council "unanimously" agreed on the fourth consecutive rate cut since October, when the main eurozone interest rate stood at 3.75%. Speaking after the board meeting in Frankfurt, Trichet highlighted the fact that the 2% figure "is the lowest ever in historical terms". 

After the announcement, the euro lost value against the US dollar, Japanese yen and British pound, delaying the prospect of parity with the UK's currency. 

However, the euro is expected to benefit from increased monetary stability over the next two months as Trichet made clear that the next decisive ECB board meeting would be held on 5 March. Meanwhile, the Bank of England did not rule out a further reduction of its own rates, which have already been slashed to an all-time low of 1.5%, driving sterling down against the euro (EurActiv 14/01/09).

"Today's decision takes into account that inflationary pressures have continued to diminish, owing in particular to further weakening in the economic outlook," Trichet remarked. Eurostat recently estimated that eurozone inflation was at 1.6%, under the official ECB target of "below but close to 2%" (EurActiv 07/01/09).

Brushing aside deflationary fears, Trichet nevertheless acknowledged that inflation was expected to decline further in the coming months, "possibly reaching very low levels by mid-year". But the bank predicts that prices will increase in the second half of 2009.

The ECB expects euro area demand "to be dampened for a protracted period" and predicts that growth will be "lower than projected". On 19 January, the European Commission will publish its interim economic forecasts. In November, it predicted growth of 0.1% for the 16-member euro zone in 2009, recession in the UK and Spain, and economic standstill for Germany, France and Italy.

In addressing the economic crisis, Trichet called for "prudence" among eurozone member states, in particular "with regard to the adoption of extensive fiscal stimulus measures," stressing that "measures decided so far put a considerable burden on public finances in a large number of euro-area countries".

During his press conference, the ECB president reiterated his stance in favour of more centralised supervision for banks operating across EU borders, saying the ECB could well step into that role. "We are not talking in abstract terms," said Trichet, noting that "there is an article in the treaty that calls for more responsibility to be given to the ECB on banking supervision" (EurActiv 15/01/09).

Trichet referred to Article 105.6 of the Nice Treaty , which says "the Council may […] confer upon the ECB specific tasks concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings".