ECB drops interest rates to record low of 0.25%

ECB drops interest rates to record low of 0.25%

 

Christmas has come earlier for those on tracker mortgages after the European Central Bank decided to cut interest rates today to a record low of 0.25%.

ECB President Mario Draghi said the latest drop was because inflation is expected to be low for a prolonged period of time.              

“We may experience a prolonged period of low inflation to be followed by gradual upward movement towards an inflation rate of below but close to 2% later on,” he told a news conference in Frankfurt today.

“Accordingly our monetary policy stance will remain accommodative for as long as necessary,” he said.

Euro zone inflation fell to 0.7% in October, well below the ECB’s target of below but close to 2%.

Calls from government ministers and industry – the loudest from Italy – for the ECB to loosen policy to help bring down the euro’s exchange rate had also heaped pressure on the bank, though few analysts expected a move this month.

The ECB cut its main refinancing rate to 0.25%. It held the deposit rate it pays on bank deposits at 0% and cut its marginal lending facility – or emergency borrowing rate – to 0.75% from 1%.

All but one of the 23 money market traders polled by Reuters this week expected the ECB to remain on hold at today’s meeting, pending a clearer view about where euro zone inflation is heading.

Since July, the ECB has said it expects to keep its key rates “at present or lower levels” for an extended period.

The ECB last cut rates in May. Meanwhile, the Bank of England kept UK interest rates at record lows of 0.5% earlier today.

Minister for Finance Michael Noonan welcomed the decision by the European Central Bank to lower interest rates.

Mr Noonan said Ireland’s model is export lead growth and the move will help the sector and the economy overall.

Mr Noonan said it will also help Ireland position in re-entering the markets.

He said: “It’s a good decision, we welcome it. We wanted interest rates to go down and it helps our position going back into the markets as well because the spreads in Europe should narrow now.”

Mr Noonan said today was an important one for Ireland as it marked the exit of the Troika.

 

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