European Central Bank cuts rates

The European Central Bank today cast off its customary caution by cutting interest rates by half a point as growth in the eurozone ground almost to a standstill in the second quarter.

To the relief of European finance ministers, the ECB finally took aggressive action to avert recession as it reduced rates to 3.25%. The ECB's move caps a week when the US Federal Reserve and the Bank of England also both cut rates by a half a point in a marked acceleration of the campaign to ward off recessionary forces.

The ECB has been strongly criticised this year for being too fixated on inflation while growth in the eurozone was slowing. In further evidence of the slowdown on continental Europe, the EU's statistical agency today confirmed that economic growth in the second quarter in the 12-member eurozone slowed to 0.1%.

Didier Reynders, the chairman of the eurozone finance ministers, said last month the area's economy may contract in the third quarter and more up-to-date national and eurozone data for various sectors has reinforced such expectations in the financial markets.

Hopes for a decisive cut received a boost on Monday when the ECB president, Wim Duisenberg, said that the ECB would take recent favourable eurozone inflation data "well into account".

With inflation already falling, spare capacity increasing and oil prices at their lowest level in two years, economists said that there was little to stand in the way of further ECB interest rate reductions.