European Central Bank cuts rates to 2

The European Central Bank cut its benchmark interest rate by half of a percentage point to 2% on Thursday, matching its lowest-ever rate as inflation plummets and recession spreads.

The cut, in line with consensus forecasts, marks the fourth cut in just over three months amidst signs the financial crisis is biting hard into the real economy and inflation threatens to fall further below the ECB's 2% ceiling.

The majority of economists in a Reuters poll had expected the ECB to take another half-percentage point from benchmark credit costs, 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-point move, while financial markets had priced in a half point or more.

ECB President Jean-Claude Trichet will explain the Governing Council's decision at a news conference at 8:30 a.m. ET.

Trichet is expected to justify the rate cut by pointing to the diminishing upside risks to inflation, which fell to 1.6% in December, and a contraction in domestic demand as well as tighter financing conditions.

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 100 basis points.

From Jan. 21, funds borrowed from its marginal lending facility will attract an interest rate of 3% and overnight deposits will pay 1%.

http://money.cnn.com/2009/01/15/news/international/ecb_rates.reut/index.htm

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European Central Bank cuts rates to 2