Europe’s Central Bank Cuts Key Interest Rate

The European Central Bank reduced its key interest rate by a quarter point Thursday and said it stood ready to cut further, but critics immediately said policymakers should have been bolder.

ECB President Wim Duisenberg, announcing that the bank’s main short-term rate was trimmed from 2.75% to 2.50%, said the move was triggered by concern that geopolitical tensions and rising oil prices were undermining growth prospects in Europe.

“Depending on further developments, the governing council stands ready to act decisively and in a timely manner,” Duisenberg said, referring to the possibility of deeper cuts.

Analysts criticized the central bank for squandering an opportunity to help the faltering euro-zone economy. Many had expected a half-point cut that would have pushed the European rate closer to the Federal Reserve’s overnight lending target rate, now at 1.25%.

“This is a waste of ammunition,” said Volker Nitsch, economist at Bankgesellschaft.

In Germany, unemployment surged to a five-year high in February, while in France, consumer confidence slumped to nearly a six-year low.

European stock markets have posted much deeper losses than the U.S. market this year, and share prices fell again Thursday as investors registered disappointment with the ECB move. The German market fell 2.4% and is down 15.7% so far this year; the French market lost 0.8% and is off 14% this year.

By contrast, the Standard & Poor’s 500 index is down 6.6% year-to-date.

The ECB’s cut was “a compromise between two camps -- those who think the economy needs a lot of stimulation, and those cautious monetarists who want to wait until after any war,” said Allan Saunderson, head of EuroZone Advisors in Frankfurt.

The ECB proved more cautious than some other European central banks, which are growing increasingly concerned about slumping output. The Swiss National Bank on Thursday lowered its official rate to a range of zero to 0.75% from a range of 0.25% to 1.25%. Norway’s central bank also cut its key rate half a point.

Analysts said the strength of the euro currency this year could hold inflation in check and pave the way for more rate reductions by the ECB. The euro held steady Thursday at $1.097, a four-year high.