ECB cuts rates to all-time lows to stimulate economy

AFP and Reuters

The European Central Bank pared back interest rates at a meeting here Thursday to give a push to progress made by EU leaders in fighting the crisis at their summit last week. The ECB, at its regular monthly policy meeting, trimmed eurozone borrowing costs by a quarter of a percentage point to a new record low of 0.75 percent. The two other key rates — on the marginal lending facility and the deposit facility — would also be cut by a quarter point to 1.50 percent and zero percent respectively. Shortly before, the Bank of England (BOE) announced it would increase its Quantitative Easing (QE) stimulus policy by 50 billion pounds (US$78 billion) to boost Britain’s recession-hit economy. And the BOE added that it was keeping its main interest rate at a record low 0.50 percent. Analysts said that in cutting rates, the ECB will help shore up the relatively positive sentiment on financial markets since the EU summit, which delivered more than originally hoped for in moves to break the debt crisis.

ECB Didn’t Discuss Other Anti-crisis Measures: Draghi The ECB, which cut its key interest rates to new all-time lows on Thursday, did not discuss any further “non-standard” measures to beat the crisis, ECB President Mario Draghi said.

“We didn’t discuss any other non-standard measures,” Draghi told a news conference here, referring to an artillery of special emergency measures at its disposal, such as massive injections of liquidity into the banking system, or a programme of buying up the sovereign bonds of debt-wracked countries. A hotly contested programme of indirectly buying up the bonds of debt-mired countries — known as the Securities Markets Programme (SMP) — has lain dormant for 16 weeks now. The ECB also appears reluctant to embark on further massive injections of liquidity while the effects of two previous ones in December and February amounting to more than 1 trillion euros (US$1.26 trillion) have still to make themselves fully felt. The size and complexity of those two operations, known as long-term refinancing operations or LTROs, were such that it was not possible to assess exactly what effects they have had, Draghi said. The aim of the LTROs was to avert a looming credit crunch, because the ECB hoped banks would lend the cheap funds to businesses and households and keep credit flowing in the debt-wracked eurozone economy. However, the cash does not appear to be trickling through into the real economy, recent data suggest, with lending by eurozone banks to the private sector actually contracting in May.

Draghi attributed that to low demand for credit, rather than the restrictive lending policies of banks.

Draghi denied the ECB is running out of possible policy options to tackle the crisis.

“We still have our artillery ready. We still have all our tools to pursue our objectives within our mandate,” he said, while refusing to elaborate further on what other possible non-standard measures the ECB could resort to.

The decision to cut rates was taken unanimously by the ECB’s 23-member governing council, Draghi said.

Asked whether the eurozone’s current bailout funds, the European Financial Stability Facility and European Stability Mechanism, had sufficient funds to a collapse of any more eurozone states, Draghi said they would be “adequate.”

US Stocks Fall Following ECB Rate Cut U.S. stocks sagged in early trade Thursday after Europe’s key central banks took action to boost growth but U.S. data did not set a clear path for the Federal Reserve to follow suit. In the first half hour of trade the Dow Jones Industrial Average fell 74.89 points (0.58 percent) to 12,868.93. The S&P 500-stock index lost 8.93 (0.65 percent) to 1,365.09, while the tech-rich Nasdaq slipped 12.77 points (0.43 percent) to 2,963.31.