A senior executive at the European Central Bank has signalled that it is minded to cut interest rates across the Continent again in the short term to throw a lifeline to struggling businesses.

Jose Manuel Gonzalez-Paramo, a board member at the European Central Bank, said that the central bank believed it could "diminish rates without adding to inflationary risks in the medium term".

His comments mark a significant departure for the central bank which has been loathe to cut interest rates for fear of stoking inflation.

Only two weeks ago, the ECB slashed the cost of borrowing by half a percentage point to 3.75 per cent.

However, since then the banking system in Europe has shown increasing signs of severe stress, with ING, the conservative Dutch bank with very little exposure to bad mortgage-related investments, requiring an emergency bail-out loan.

The change of tone by the ECB may have been triggered by the continuing decline in the price of oil, which has halved in twelve months. Eurozone inflation is now expected to fall from around 3.6 per cent to close to 2 per cent sometime next year.

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