ECB Interest Rate Cut to Just 0.25%

The European Central Bank cut interest rates to a new record low of 0.25% today. The move took financial markets by surprise and the euro fell sharply in response while European shares rose.

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,”
“We have a whole range of instruments to activate before reaching the lower bound … in principle we could even cut further the interest rate,” Draghi said.

The ECB  held the deposit rate it pays on bank deposits at zero and cut its emergency borrowing rate to 0.75 % from 1%

The euro fell to a  seven-week low against the dollar at  $1.3304, down from around $1.3490 just before the ECB announcement. It also fell against Sterling – see

Irish Finance Minister Michael Noonan welcomed the drop in the interest rate  and he said.

“We wanted interest rates to go down and it helps our position going back into the markets because the spreads in Europe should narrow now,”

“The interest rate reduction and the suggestion that the currency level might go down a little would both help our exports and help our economy to grow.”