The European Central Bank has cut its main refinancing rate by 50 basis points to 3.25%.
After the Bank of England’s unprecedented 150bps cut earlier today, this means the ECB rate is now higher than the BoE rate – and substantially above the US Fed Funds rate of 1%.
The ECB has a specific mandate to target inflation, which has led it to hold off on cuts in recent months while the US in particular has been slashing rates to boost its ailing economy. The BoE too has deemed the economic slowdown more problematic than an inflation rate still running well above target.
William Dinning, head of strategy at Aegon Asset Management, commented: “We are surprised that this BoE action has not been followed by a more aggressive move than 0.5% from the ECB. We continue to be concerned that the continental European economy could be the most adversely affected by the crisis that is evident around the world. An interest rate policy being set for multiple countries is unlikely to be appropriate for all those countries and there remain considerable downside risks to economic activity in the eurozone.”
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