Rates cut to record low as the eurozone continues to flounder

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The European Central Bank cut interest rates to a fresh record low yesterday and launched a new scheme to push money into the flagging eurozone economy.

In a series of measures underscoring growing concern about the currency bloc’s health, the ECB cut its main refinancing rate to 0.05 per cent from 0.15 per cent previously and drove the overnight deposit rate deeper into negative territory, now charging banks 0.20 per cent to park funds with it.

The eurozone flatlined in the second quarter of the year and the Ukraine crisis is weighing heavily on business confidence.

“The Governing Council sees the risks surrounding the economic outlook for the euro area on the downside,” ECB President Mario Draghi said.

“In particular, the loss in economic momentum may dampen private investment, and heightened geopolitical risks could have a further negative impact on business and consumer confidence.”

New ECB economic forecasts predicted slower growth this year – of just 0.9 per cent – picking up to 1.6 per cent in 2015. The forecast for inflation, now running at just 0.3 per cent, was cut to 0.6 per cent, rising to 1.1 per cent in 2015, still way below the ECB’s target of close to but below 2.0 per cent.

Draghi said if inflation looked like staying too low for too long, the ECB Governing Council was unanimous in its commitment to using other “unconventional instruments” – a phrase taken as code for printing money as the US Federal Reserve and Bank of England have.

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