ECB cuts interest rates to record low

The move took financial markets by surprise – the euro fell sharply in response while European shares rose.

“We may experience a prolonged period of low inflation to be followed by gradual upward movements towards an inflation rate of below but close to 2 per cent later on,” ECB President Mario Draghi said.

The ECB cut its main refinancing rate by 25 basis points to 0.25 per cent.

It held the deposit rate it pays on bank deposits at zero and cut its emergency borrowing rate to 0.75 per cent from 1 per cent.

“We have a range of instruments to activate before reaching the lower bound... in principle we could even cut further the interest rate,” Mr Draghi said.

Euro policymakers have played down the threat of Japan-style deflation, which led to a “lost decade” there, but appear to be taking no chances.