The European Central Bank has dramatically cut the cost of borrowing in the eurozone, bringing its main interest rate down to 2%, less than half the level in the UK. This marks the eighth quarter-point reduction in a year, aimed at bolstering flagging eurozone growth amidst the economic fallout from global trade wars.
The 20-member currency bloc has experienced a significant slowdown in economic activity, with particularly acute slowdowns observed in France, Germany, and Italy. The pessimistic forecasts for the upcoming year have intensified the pressure on the central bank to make borrowing more affordable and stimulate investment.
The ECB’s decision also coincided with a fall in eurozone inflation below its target. While acknowledging the detrimental effects of trade policies, the central bank also foresees some support from increased government investment in areas like defense. ECB President Christine Lagarde, while expressing caution, highlighted the resilience of the labor market and private sector balance sheets as key strengths.
