ECB cuts rate to 4.25%

August 30, 2001 Posted: 1144 GMT

LONDON (CNN) -- The European Central Bank lowered interest rates by a quarter point to 4.25 percent, its second cut this year, to shore up economic growth.

Germany's economy, the biggest in Europe, stagnated in the second quarter, prompting companies such as chemicals maker BASF and chipmaker Infineon Technologies to slash thousands of jobs.  

"Germany is singing out for a rate cut," Henk Potts, a strategist at Barclays Stockbrokers, said before the ECB published its verdict. Most economists polled by CNN had expected a quarter of a percentage point cut.

The ECB has been stung by criticism that it has done little to fight slowing growth. The U.S. Federal Reserve has cut rates seven times this year to try to boost investment and the sluggish economy, while the Bank of England has made four cuts in 2001.

ECB President Wim Duisenberg will elaborate on the rate decision at a press conference later on Thursday. The ECB is also set to present new euro banknotes and discuss the introduction of euro cash, which takes place in January.

Duisenberg has pointed out that the ECB's central mandate is to keep inflation below 2 percent. Consumer price inflation hit a peak of 3.4 percent in May and has been steadily easing, falling to 2.8 percent in June.

The central bank had paved the way for the rate cut after it dismissed a sharp rise in M3 money supply figures, an indicator of inflationary pressure, to 6.4 percent, saying the figure was inflated by special factors.

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