Eurozone rate cut to boost growth

Eurozone rate cut to boost growth
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The European Central Bank has cut borrowing costs to a new record low trying to breathe life into a weakening eurozone economy.

The main interest rate was reduced from 1.0 percent to 0.75 percent.

It is a complement to measures agreed by government leaders last week to tackle the bloc’s debt crisis.

But ECB policymakers resisted pressure from the financial markets and even the International Monetary Fund to take bolder measures and buy government bonds.

At the same time, Britain’s central bank left its main interest rate unchanged – at 0.5 percent – but will pump the equivalent of another 63 billion euros of new money into the recession-hit UK economy.

Other big economies – the US and Japan – already have rock bottom rates, and China’s central bank cut interest rates for the second time in a matter of weeks on Thursday

Beijing is stepping up efforts to bolster an economy that last quarter probably suffered its weakest growth since the global financial crisis.

In his statement to the media, the ECB’s Mario Draghi addressed inflation and growth: “Inflationary expectations for the euro area economy continued to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, two percent over the medium term. At the same time, economic growth in the euro area continues to remain weak with heightened uncertainty weighing on confidence and sentiment.”

Draghi said the eurozone economy will recover only gradually, threatened by the debt problems of several of the bloc’s members and banks’ unwillingness to lend.

To try to change that the ECB cut its overnight deposit rate – to zero – hoping to encourage banks to lend to each other rather than simply parking cash at the ECB.

Business surveys released on Wednesday strengthened the case for a cut, showing the eurozone’s private sector downturn eased only slightly in June and that it remains in recessionary territory.

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