ECB edges towards QE and cuts interest rates

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ECB edges towards QE and cuts interest rates

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The European Central Bank has cut interest rates to a record low and announced other measures to try to get the euro zone economy back on its feet.

In particular it will join most of the world’s other top central banks with a first step into so-called “quantitative easing.” It will buy 60 billion euros worth of euro-denominated bonds to put more money into the region’s economy. The latest rate cut was by a 0.25 percent to one percent. It is the seventh time the ECB has lowered the cost of borrowing since October last year when the benchmark rate was 4.25 percent. ECB president Jean Claude Trichet said this level of interest rates is “appropriate” given that inflation is low. He told reporters: “Today’s decision has taken into account the expectation that price developments will continue to be dampened by the substantial past fall in commodity prices and the marked weakening in economic activity in the euro area and globally.” Trichet said the euro-zone economy is showing tentative signs of stabilising though at a very low level. He added: “The world economy including the euro area is still undergoing a severe downturn with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010.” After the rate cut, the euro rose to a fresh one month high against the dollar.