Europe’s central banks slash rates

Interest rates were slashed on a historic scale across Europe on Thursday as central banks reacted aggressively to the sudden and brutal deterioration in the economic outlook since the autumn. The ECB announced a 75bp cut in its main policy interest rate to 2.5% – its largest cut ever – just hours after Sweden’s central bank surprised markets by reducing official borrowing costs by a record 175bp. The Bank of England slashed its rates by another full percentage point to 2%, equal to the lowest rate since the central bank was founded in 1694. None of the European central banks hinted at further rate cuts, but financial markets have already priced in another 0.5 point reduction in the eurozone by February, and a fall to 1% in the UK in the near future. In the UK, where more bleak economic data came Thursday with further falls in house prices and new car registrations, the rate cuts are likely to disappoint, notes the FT’s economics editor. France, meanwhile, announced a €26bn stimulus plan.

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