European interest rates to fall further

12 November 2008

Economists expect the European Central Bank (ECB) to follow the UK’s lead and further cut their own interest rate in 2009.

While the Bank of England (BoE) cut its interest rate by 1.5% to 3% last week, ECB policy makers cut its benchmark rate by 0.5% to 3.25%, in an attempt to combat to continuing economic downturn.

The European Commission has confirmed that the eurozone is currently in a technical recession and projects that economic growth will virtually diminish in 2009.

According to a Reuters’ poll, the ECB will follow up this interest rate cut with another by the end of the year and into 2009 as the economy slows down. The majority of 57 economists polled expect the bank to cut again by the year-end with most saying by another 0.5%.

Jean-Claude Trichet, ECB’s President, has refused to rule out more rate cuts.

Further ECB interest rate cuts would be good news for Britons seeking to buy property in the eurozone, as it would both devalue the European currency, and lower European mortgage borrowing rates.

Alastair Constance of Mercury FX comments: “If the ECB does cut interest rates, then the sterling should appreciate against the euro currency, which would be good news for Britons’ buying property in the eurozone. A cut in European interest rates would also reduce the borrowing costs of taking out a mortgage in the eurozone.”