Business, Economics and Jobs

European Central Bank cuts interest rates


Many believe more urgent action is required to slow the euro zone's economic decline.


Daniel Roland

The European Central Bank reduced its main refinancing rate from 0.75 percent to 0.5 percent today. The rate sets what banks pay to borrow money for a week or more.

The ECB also cut its rate for overnight borrowing from 1.5 percent to 1 percent. The central bank’s deposit rate remains at zero.

The interest rate cuts – the first change in interest rates in ten months – indicate Europe’s central bankers are concerned about falling inflation and rising unemployment in the euro zone.

More from GlobalPost: Euro zone unemployment reaches a record 12% high

At a news conference following the announcement, ECB President Mario Draghi said the central bank would lend as much money to banks as they needed at the benchmark interest rate until at least the middle of 2014.

"Weak economic sentiment has extended into the spring of this year," Draghi said. "Our monetary policy stance will remain accommodative for as long as needed."

The cuts take the ECB’s main interest rate down to a record low. However, the rate is still higher than the US Federal Reserve’s benchmark interest rate, which has been at 0.25 percent since late 2008.

Experts downplayed the possible effects of the ECB's decision.

An interest rate cut in the euro zone "would be most effective alongside indications that monetary policy will be kept very acommodative long-term," the accounting firm Ernst & Young tweeted yesterday.

Writing in the Financial Times, Michael Steen said that the cut seemed mostly symbolic, given that the ECB has acknowledged that the low rates don't get passed on to businesses and households in the worst-hit countries.

"ECB cut sadly useless," tweeted Marco Annunziata, chief economist at GE. "Ppl will keep asking mon policy for more (easing), govts will keep delivering less (reforms)."