European Central Bank Cuts Rates to New Low

ecbFighting deflationary risk and a stronger Euro, the European Central Bank (ECB) chopped interest rates to a new record low. Eurozone inflation took a dive and the ECB board members emphasized they would prime banks with liquidity until 2015 to prevent a recovery stall in the economy.

The main refinancing rate was lowered by 25 basis points, while the ECB held the deposit rate it pays on bank deposits to zero. The emergency borrowing rate was cut from 1% to 0.75%.

ECB President Mario Draghi told a news conference, “We may experience a prolonged period of low inflation to be followed by gradual upward movements towards an inflation rate of below but close to 2 percent later on.”

Financial markets were taken a bit by the move – in the aggregate European stock shares increased today.

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