ECB Cuts Rates to Ward Off Euro Zone Deflation Threat

NDTV Profit Desk

04 Sep 2014, 05:28 PM IST

ECB Cuts Rates to Ward Off Euro Zone Deflation Threat

The European Central Bank cut interest rates to new record lows on Thursday, unexpectedly lowering borrowing costs to try to lift inflation from rock-bottom levels and support the stagnating euro zone economy.

The ECB cut its main refinancing rate to 0.05 per cent from 0.15 per cent. ECB President Mario Draghi had said after the ECB's last rate cut in June that "for all the practical purposes, we have reached the lower bound".

In a landmark speech on Aug. 22, however, Draghi said indications from financial markets showed inflation expectations "exhibited significant declines at all horizons" in August.

Euro zone inflation slowed to 0.3 per cent last month, sinking deeper below the ECB's target of just under 2 percent and raising the spectre of deflation in the euro zone.

On Thursday, the ECB also said it had lowered the rate on bank overnight deposits to -0.20 per cent, which means banks pay to park funds at the central bank, and cut its marginal lending facility - or emergency borrowing rate - to 0.30 per cent.

Markets now turn their attention to ECB President Mario Draghi's 1230 GMT news conference, at which he is expected to give a more detailed explanation of the ECB's decision.