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ECB cuts interest rate to record low

Key eurozone interest rate cut by 0.25 per cent.

Image: AP Photo/Michael Probst/PA

THE GOVERNING COUNCIL of the ECB has announced a cut in the bank’s key interest rate to a record eurozone low of 0.75 per cent.

The 0.25 per cent cut in the rate for the bank’s main refinancing operations.

Meanwhile, the bank also announced a 0.25 per cent cut in its marginal lending facility interest rate to 1.5 per cent, while a similar cut on the deposit facility sees that rate drop to 0 per cent.

In a press conference on the bank’s decision, ECB President Mario Draghi said that inflation rates are expected to decline over 2012 to below 2 per cent. At the same time, the underlying pace of economic expansion continues to be moderate.

Ongoing tensions in financial markets are likely to dampen the pace of economic growth in the eurozone “in the second half of this year and beyond”, Draghi said.

“Overall, it remains essential for monetary policy to maintain price stability over the medium term,” Draghi added.

Real GDP growth in the euro area is expected “to be very moderate in the second half of this year”. There are signs that previously identified downsize risks have been materialising, he said, which makes a significant downward revision of forecasts and GDP growth predictions “very likely”.

The ECB chief said that looking forward, a number of factors seem to be dampening the underlying growth momentum in the euro area including “a moderation in the pace of global demand” and confidence issues over “ongoing tensions in a number of euro area sovereign debt markets.

“At the same time, we continue to expect euro area economic activity to benefit from continued positive economic growth in the emerging market economies as well as from the low short-term interest rates and various measures taken to support the functioning of the financial sector.”

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