The European Central Bank's interest rate of 1.25% can be cut further but should not drop below the 1% mark, an influential member of the bank's rate setting council said today.
'There is still a little room for manoeuvre on the main refinancing rate, which we should use given inflation developments,' Axel Weber, president of the Bundesbank, Germany's central bank, said.
However, Weber said he was 'critical' of the idea of moving the rate below 1%, as this could further paralyse the interbank market, in which banks lend to each other.
On April 2, the ECB reduced interest rates by a quarter of a percentage point to an all-time low of 1.25% and hinted strongly that a further quarter point cut was likely at the next meeting on May 7.
Turning to the financial crisis, Weber said: 'The way out of the crisis will be long and difficult. But we must put on sturdy shoes and clear the obstacles out of our way.'
