ECB's governing council makes a quarter-point cut in interest rates to boost recession-hit economies
Mario Draghi, president of the European Central Bank, has delivered an emergency quarter-point cut in interest rates in a bid to kickstart the recession-hit eurozone economy.
After holding its policy meeting in Bratislava on Thursday, the ECB's governing council announced that it would reduce interest rates by a quarter-point, to 0.5%. It is the first cut since July 2012, shortly before Draghi promised to do "whatever it takes" to save the single currency and calmed markets in what became known as the "Draghi put".
David Brown, of New View Economics, said: "The ECB rate cut is no surprise as it was well flagged by Draghi at last month's meeting. Is it enough? No. The marginal effect of the cut is very limited, but at least it should have some symbolic rallying effect on economic confidence".
Draghi will offer more explanation of the ECB's decision at his press conference on Thursday afternoon, and analysts will be watching for signals of dissent within the governing council, including from Bundesbank governor Jens Weidmann.
German chancellor Angela Merkel, who must run for re-election in September, had cast doubt on the arguments for a cut, saying German savers would benefit from a higher interest rate instead.
But the ECB is concerned about the health of peripheral economies including Greece and Portugal, which remain deep in recession, and record unemployment of 12% across the single currency zone.
A drop in inflation, to 1.2%, in April – well below the ECB's ceiling of 2% – also helped make room for Thursday's reduction in borrowing costs.
Howard Archer, of consultancy IHS Global Insight, said: "The ECB's decision to cut interest rates to 0.50% had looked ever more inevitable as latest data and survey evidence pointed to ongoing and widespread economic weakness across the Eurozone as well as below target and receding inflation."
Financial markets had been betting on a rate cut since the ECB's last meeting, in April, when Draghi used his regular press conference to promise that he would be, "closely monitoring" economic developments: a phrase seen as code for a forthcoming rate cut. He had also promised to examine "various instruments, various tools", to unblock clogged banking markets in the single currency zone.
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