ECB cuts interest rate to one per cent
Thursday, 08 December 2011 01:27
The European Central Bank (ECB) has cut interest rates in the eurozone from 1.25 per cent to one per cent in a move designed to encourage economic growth and halt the onset of a likely recession on the continent.
The policy decision contradicts earlier rises in interest rates by the ECB before the current President Mario Draghi took over. His predecessor Jean-Claude Trichet raised rates in the summer to try and combat inflation in a move that now looks as if it could have deterred much needed economic growth. This is the second cut in rates since Mr Draghi took over the reins at the ECB.
Some analysts believe that today’s rate decision should have gone further and cut rates by at least another quarter of a per cent. The move comes as European leaders converge on Brussels for a summit described as “do or die” in terms of the future of the euro.
The reduction in interest rates takes the rate back to one per cent, the level it was between mid-2009 and the end of 2010.
The ECB is thought to be preparing the terms and scale of a bailout for Italy. The markets do not believe the eurozone’s bailout facility, the European Financial Stability Facility (EFSF) has the capacity to fund a bailout for an economy the size of Italy. Therefore, the focus has moved onto the ECB, which potentially has the ability to start up a large programme of asset purchases or quantitative easing.
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