Eurozone interest rates fell by half a percentage point to the lowest level in more than three years yesterday as the European Central Bank said that it expected the eurozone recession to deepen and signalled that borrowing costs could fall further.

In a sign of the extent to which eurozone policymakers have been taken aback by the ferocity of the downturn, Jean-Claude Trichet, ECB president, warned that growth forecasts it published only last month would have to be revised downwards.

Even after the bank cut its main policy interest rate from 2.5% to 2% – marking a return to the record low level last seen in 2005 – official borrowing costs had not reached a floor, Mr Trichet said. Pointedly, he did not rule out resorting to the use of tools other than interest rates to stimulate that economy, such as government bond purchases.

Financial Times