dec 2008 ECB Rate Decision

dec 2008 ECB Rate Decision

The European Central Bank lowered the benchmark interest rate by 50bp to 3.25% from 3.75% following the coordinated rate cut on October 8^th. The ECB, along with the Fed, lowered the key rate by 50bp to 3.75% from 4.25% in order to avoid a global meltdown. Meanwhile, falling oil prices have certainly helped to taper the upside risks for inflation, which would allow the central bank to hold a dovish outlook going forward.

ECB President Trichet explicitly stated that policymakers may lower the benchmark interest rate further as they expected economic activity to remain subdued for ‘a rather protracted period’ of time, and may continue to ease policy throughout the next year as the economy heads into a recession. The remarkable shift in policy has clearly weighed on the euro, and may weaken further against the U.S. dollar as investors curb their appetite for risk.