The European Central Bank cut its main lending rate by 50 basis points today as the euro zone economy slows.
The move takes the ECB's key interest rate to 3.25% and is the second cut in just under a month following an emergency 50 basis points reduction made on October 8 in tandem with a host of other central banks.
The Bank of England earlier cut rates by 150 basis points and the Swiss National Bank by 50 basis points.
ECB president Jean Claude Trichet has indicated there is room for further rate cuts this year and early next year if the rate of inflation in the euro zone continues to fall.
Speaking at a press conference following the governing council's decision to cut rates by 0.5% to 3.25%, Trichet said falling commodity prices could lead to lower inflation, or 'price stability'.
He urged the banks to pass on the rates cuts to consumers and businesses - saying banks must restore confidence and live up to their responsibilities and reflect the decision of the ECB in their behaviour.
Trichet said the decision to cut rates was unanimous, and that a significant decrease in rates was appropriate in the current circumstances. He said the council discussed several options, including a 75 basis points cut, but decided unanimously that it was appropriate to drop rates by 50 basis points.
He said next month 'we will do whatever will be necessary to be able to say that we deliver price stability'.
Trichet said that monetary policy makers and heads of governments have several ‘important rendezvous’ ahead.
He said: 'We have a succession of meetings at European level, then an important meeting of G20 ministers and governors in Brazil and then heads of state and governments in Washington.
'A lot of orientations have already been identified as good orientations for changes in the financial sector - less short-terms, more transparency, a jump-up in terms of risk management and more discipline in macro policies at the level of all participants in the economy.'
The euro zone's economy, which had grown every year since the bloc's creation in 1999, contracted by 0.2% in the second quarter this year. Most economists expect further shrinkage in third quarter GDP figures when they are released on November 14.
Annual inflation is now at 3.2%, well above the ECB's target of just under 2%, but economists expect it to drop rapidly in the coming months.
