The European Central Bank has cut the cost of borrowing again. It trimmed its main interest rate to 0.05 percent from 0.15 percent – a new record low.
The unexpected rate cut underlined ECB President Mario Draghi’s determination to try to lift inflation from rock-bottom levels and support the stagnating eurozone economy.
It came even though Draghi had said after the ECB’s last rate cut in June that “for all the practical purposes, we have reached the lower bound”.
European stock markets surged in reaction, and the euro sank in value, but Marco Valli, an economist with Unicredit, said the cut would have little impact on the European economy.
“We are speaking about a very tiny interest rate cut,” he said. “They probably want to show that they won’t just do rhetoric. But it will help only at the margins.”
Sources also told Reuters that more stimulus is under consideration.
There is however resistance within the ECB’s 24-member policymaking council to the idea of bringing out the big guns, that is quantitative easing – essentially printing money to buy assets such as bonds.
The ECB is under pressure to reverse sinking eurozone inflation. It slowed to 0.3 percent last month, sinking deeper below the ECB’s target of just under 2.0 percent and raising the spectre of deflation in the eurozone.
On Thursday, the ECB also said it had lowered the rate on bank overnight deposits to -0.20 percent, which means banks will pay more to park funds at the central bank.
with Reuters
