Interest rates fall again

The European Central Bank today cut interest rates by 0.75%, its biggest reduction in history. The bigger than expected move comes as euro zone inflation plummets and the euro zone economy sinks deeper into recession. The move takes the ECB's main rate to 2.5%, its lowest in nearly two and a half years, and marks the third cut in barely two months. It is estimated that the latest move, if passed on in full, would knock €128 off the monthly repayments on a 30-year €300,000 mortgage. The ECB has been forced to abandon its gradual monetary policy approach as a wide range of economic indicators in the eurozone are in freefall. The member states of the eurozone are France, Italy, Germany, Belgium, the Irish Republic, the Netherlands, Luxembourg, Spain, Portugal, Slovenia, Malta, Greece, Austria, Finland and Cyprus.

Central banks worldwide are cutting interest rates dramatically to stave off a protracted recession. Earlier, the Bank of England reduced interest rates to 2% from 3%. Sweden's central bank cut its key interest rate by a record 1.75 percentage points to 2% on Thursday and monetary policymakers in Denmark and New Zealand also reduced the cost of borrowing.

Eurozone inflation, meanwhile, plunged to 2.1% in November and is expected to fall dramatically during next year, probably even turning negative (deflation) in some months.