AFP — The European Central Bank surprised financial markets on Thursday by paring back its key interest rates to new all-time lows to ward off deflation, and it also cut growth forecasts.
The move, which allows banks to borrow money more cheaply, is meant to revitalize the economy by encouraging private sector development. Lowering the interest rate, however, generally weakens a country’s currency; something that is good for exports and international tourism, but bad for imports, personal savings and consumer purchasing power.
The news sent the euro down by more than a cent against the dollar to the lowest level in 13 months.
Against a background of growing concern that the single currency area is on the verge of dangerous spiral of falling prices, the central bank has also cut its central refinancing rate and lowered its deposit and marginal lending rates.
Israel’s central bank also announced last week that it was reducing its interest rates for September to an all-time low of 0.25 percent in order to counteract a decline in economic growth and the economic damage of the July-August Gaza war.
Israel’s Manufacturers Association estimated the total economic impact of Operation Protective Edge on Israeli manufacturers so far to be about $336 million. Israel’s tourism industry has lost at least $566 million after tourism dropped by 26 percent over last year for the month of July.
The central bank said in a statement earlier last month that economic activity in Israel began experiencing “a sort of contraction” even before the Gaza operation.
Times of Israel staff contributed to this report.