FRANKFURT, Germany – The European Central Bank surprised markets by cutting its key interest rate to a record low on Thursday, a bid to help Europe’s recovery from going into reverse.
Ahead of a press briefing, where further stimulus measures may be announced, the ECB trimmed its benchmark interest rate to 0.05 per cent from a previous record low of 0.15 per cent.
The benchmark refinancing rate determines what banks pay the ECB for credit. It influences what banks charge businesses and consumers to borrow. Lower rates stimulate more lending and growth.
The ECB also cut its deposit rate, what banks pay to keep their money at the central bank, to minus 0.2 per cent from minus 0.1 per cent.
Markets are awaiting a news conference by bank head Mario Draghi for clues on what more the bank might do. Draghi has said the bank could, if needed, buy large quantities of bonds with new money – a move called quantitative easing. The hope is banks would use the new money to lend more in the economy, stimulating credit, investment and growth.
Analysts say it may be too early for the announcement of such measures at Thursday’s meeting of the ECB governing council. Instead, Draghi could use his post-meeting news conference to give more detail on how the ECB is preparing to take action. In fact, the ECB may wait several more months before deciding, the say.
The bank announced a raft of measures in June and may wait to see what effect those steps have.
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