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European Central Bank cuts interest rate to historic low

07-06-2012 13:55 BJT

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The European Central Bank cut its key interest rate to a historic low of 0.75 of a percentage point on Thursday.

CCTV correspondent Jack Barton reports the cut is expected to act as a stimulus for the eurozone’s deteriorating economy and as reinforcement to growth strategies agreed upon by European leaders at a major summit last week.

EU officials were desperate for it and the markets were expecting it, so the announcement by the European Central bank on Thursday surprised few.

Mario Draghi, President of ECB, said, "We decided to cut the ECB’s key interest rate by 25 basis points".

Mario Draghi, president of the European Central Bank (ECB), addresses
a press conference at the ECB headquarters in Frankfurt, Germany, July
5, 2012. ECB on Thursday cut the benchmark interest rate by 25 basis
points to 0.75 percent, a record low. (Xinhua/Rao Bo)

That puts the rate at a new historic low of .75 of a percentage point. Despite an easing of inflationary pressures the ECB had resisted the cut for months calling for strong political action from EU institutions in Brussels before it would act.

That action finally arrived last Friday when EU leader’s agreed to a raft of measures including the framework of a banking union and direct emergency funding for troubled banks.

The rate cut is welcome news here in Brussels where it is seen as a timely stimulus measure arriving in a week when Eurozone unemployment hit a new record high of 11.1 percent and clear statistical evidence emerged that the trading block’s economy continues to contract.

The rate cut brings relief to Europe’s troubled banks, which will see a decrease in repayment costs on about one trillion Euros they’ve borrowed from the ECB since last December.

It’s hoped the banks will pass on their lowered borrowing costs to mortgage holders.

Policy experts say the rate cut is also intended to prop up a slowing German economy, which remains not only the main engine of growth for the Eurozone but the biggest contributor to the bailout funds.

They warn a deeper slowdown in Germany would have a ripple effect across the block.

Karel Lannoo, chief executive of Centre for European Policy Studies, said, "Because Germany will have less cash to solve this crisis, which it still has today. But if the slowdown continues, let’s say to help Italy, to help Spain, it will be even more difficult".

The ECB also reduced its overnight deposit interest rate down to zero on Thursday. The move is expected to encourage inter-bank lending and reinvigorate the money markets by discouraging the current habit of banks parking up to 800 billion euros back at the European Central Bank every night.


Editor:Zhang Dan |Source: CNTV.CN

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