European Central Bank president Jean-Claude Trichet has said the ECB will wait until March at least before deciding on any further changes to its interest rates.
He made his comments after the bank cut its main interest rate by half a percentage point to 2% today, matching its lowest rate as inflation plummets and recession spreads.
The next meeting at which it would normally consider interest rate levels will be in early February but 'we do not consider that it would be an important rendezvous' for a decision on policy, Trichet said. 'The next important rendezvous would be in March,' he said. The next meeting was only three weeks away, he pointed out.
Mr Trichet said economic data and surveys since the ECB's last meeting pointed to a 'further weakening of economic activity around the turn of the year, indicating the materialisation of previously identified downside risks to activity'.
Banks respond to the cut
AIB, Halifax, Ulster Bank, First Active, Permanent TSB, NIB, Irish Nationwide and EBS Building Society have confirmed that they are passing on the half a percentage point interest rate cut in full to their variable and tracker rate mortgage holders.
Bank of Ireland says it is passing on the interest rate cut in full to owner occupiers with variable or tracker rate mortgages. It has not yet made a decision on other mortgage rates for investors.
A Permanent TSB spokesman said the rate cut was being passed on in full as the real cost of bank borrowing on the interbank markets had come more into line with the ECB rate in recent weeks.
NIB said it saw 'little scope' to pass on any future rate cuts to variable rate customers 'given the requirement to balance the level of interest rates paid to deposit customers and the cost of market funding'.
ECB cut came as figures worsened
The latest rate cut marks the fourth in just over three months amid signs that the financial crisis is biting hard into the euro zone economy and as inflation falls further below the ECB's 2% target.
Borrowing costs at the central bank have now returned to their previous all-time low point seen first from June 2003 until December 2005.
The majority of economists had expected the ECB to take another half a percentage point from its key rates, although the level of uncertainty around the decision was unusually high.
Some analysts had forecast the ECB would leave rates on hold and others expected a smaller, quarter percentage point move, while financial markets had priced in half a percentage point or more.
The ECB also set new rates for its overnight facilities, after announcing in December it would increase the gap between these rates and the benchmark rate to back to 1%. From January 21, funds borrowed from its marginal lending facility will attract an interest rate of 3% and overnight deposits will pay 1%.
While rates at 2% match the lowest level in the 10-year history of the ECB in historic terms, they pale alongside almost-zero borrowing costs in the US and Japan, as well as the Bank of England which is thought to be headed in a similar direction.
The numbers on the euro zone have worsened by the week since the zone was confirmed as in recession late last year. Recent data showed Germany's economy, the euro zone's biggest, likely shrank 1.5-2% in the fourth quarter of 2008 and officials there have signalled this year will see the worst contraction since World War Two. Industrial production has also plummeted across the 16-country bloc in recent months.
Meanwhile, the Danish central bank said today that it would slash its key interest rate by 0.75 percentage points to 3%, following the ECB's rate cut.
