ECB Cuts Main Rate to Record Low, Deposit Rate to Zero

The European Central Bank cut interest rates to a record low and said it won’t pay anything on overnight deposits as the sovereign debt crisis threatens to drive the euro region into recession.

Some “downside risks to the euro-area economic outlook have materialized,” ECB President Mario Draghi said at a press conference in Frankfurt after lowering the main refinancing rate and the deposit rate by 25 basis points to 0.75 percent and zero respectively. “Economic growth in the euro area continues to remain weak with heightened uncertainty weighing on both confidence and sentiment,” Draghi said.

With Europe’s debt crisis curbing growth across the continent and damping the global outlook, the ECB was under pressure to ease monetary conditions, even though Draghi last month voiced misgivings about the effectiveness of a rate reduction. While today’s moves may not stimulate demand, they will lower borrowing costs for struggling banks and could build on the confidence boost euro-area governments delivered last week when they took steps toward a deeper economic union.

By Jeff Black and Jana Randow
Read More: Bloomberg