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ECB Cuts Rates to Record Low

  • Lisa Bryant

President of the European Central Bank Mario Draghi attends a news conference during the Meeting of the Governing Council of the European Central Bank, in Bratislava, Slovakia, May 2, 2013.

President of the European Central Bank Mario Draghi attends a news conference during the Meeting of the Governing Council of the European Central Bank, in Bratislava, Slovakia, May 2, 2013.

In a move to help ailing eurozone economies, the European Central Bank on Thursday cut its benchmark interest rate to a record low of 0.5 percent, and raised prospects of a further rate cut, if needed.

The move by the European Central Bank was widely expected. Nonetheless, the ECB cut its key interest rate from 0.75 percent to 0.5 percent.

Speaking at a press conference in Bratislava, ECB President Mario Draghi said the cut could help turn around the ailing fortunes of the 17-member euro currency union.

"Monetary and loan dynamics remain subdued. At the same time, weak economic sentiment has extended into [the] spring of this year," he said. "The cut in interest rates should contribute to support prospects of recovery later in the year."

Along with the rate cut, the ECB also has extended cheap loans to banks to encourage them to lend.

Those measures aim to combat a spate of grim economic news, showing sputtering growth and high unemployment rates across much of the eurozone. Thousands of Europeans have taken to the streets to protest tough austerity measures, sparking a debate on whether European governments went too far.

But Draghi defended austerity as a necessary pill for many European economies that would pay off in the long run. He also said many of the reasons for stalling growth were rooted in areas other than monetary policy.

"Many of the problems we see today in competitiveness, in their labor markets, in their tax area, don't have anything to do with monetary [policy]… neither can they be fixed by monetary policy, but can only be fixed by changing what is wrong with these three areas, at least," he said.

A number of experts are skeptical the ECB's moves will be enough to jolt the eurozone out of its slump.

Zsolt Darvas, an analyst at the Brussels-based economic think-tank Bruegel, said the ECB should have cut its rates much earlier.

"I think it won't be enough. I expect the European Central Bank will do more. They may cut interest rates further, to 0.25 percent, but in itself it won't help much. What will be needed is much more forceful action for helping revive credit growth throughout the euro area," said Darvas.

Draghi left open the possibility of a further cut in the main interest rate, saying the ECB will be monitoring the situation closely in the months ahead.
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