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ECB’s Trichet sees signs downturn is stabilizing

  European Central Bank President Jean-Claude Trichet said the euro-zone economy was showing tentative signs of stabilizing at a very low level, after the ECB cut interest rates to a new record low on Thursday.

The ECB cut another 25 basis points from its benchmark refinancing rate, taking it to 1%, and Trichet said inflationary pressures had diminished in what remained a severe economic downturn.

“The latest economic data and survey suggest tentative signs of a stabilization at very low levels after a first quarter which was significantly weaker than expected,” Trichet told the news conference after the bank’s decision.

“The world economy including the euro area is still undergoing a severe downturn with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010.”

He also said inflation expectations remain firmly anchored and were consistent with keeping inflation in line with the bank’s target of price growth at or just below 2%. “The outcome of the monetary analysis indicates that inflationary pressures have diminished,” he said.

Euro zone inflation is at a record low of 0.6% and although some economic data are showing signs of stabilization, the European Commission this week forecast the euro zone’s economy would shrink 4.0% this year. The ECB has cut rates from 4.25% since last October. (Reuters)