European Central Bank cuts key interest rate to fight recession

WASHINGTON -- The European Central Bank on Thursday lowered its key interest rate to a record low level in an effort to spur economic growth in the recession-plagued Eurozone.

The central bank’s policymakers lowered its main refinancing rate by 0.25 percentage points to 0.50%, the lowest level ever for the 17-nation Eurozone.

The rate is now close to the zero-to-0.25% rate the Federal Reserve Bank has had for its key short-term rate since late 2008.

Fed policymakers said Wednesday that they could boost their bond-buying stimulus efforts if the U.S. economy needs an additional boost amid signs of another spring slowdown.


The economic situation is worse in Europe, which fell back into recession last year -- and problems there affect the U.S. by reducing demand for American exports.

Quiz: How much do you know about California’s economy?

ECB President Mario Draghi said the central bank’s monetary policy “will remain accommodative for as long as needed,” and he suggested that interest rates could be cut further.

The ECB action came as European officials reported this week that the unemployment rate in the Eurozone hit a record high of 12.1% in March. At the same time, inflation dropped to a 1.2% annual rate in April, well below the central bank’s target maximum of 2%.


With joblessness rising and inflation in check, the door was open for more aggressive action by the ECB.

“Overall labor market conditions remain weak,” Draghi said at a news conference in Bratislava, Slovakia. “Recent developments and short-term indicators ... indicate that weak economic sentiment has extended into the spring of this year.”

He noted that the Eurozone economy contracted at a 0.6% annual rate in the fourth quarter of last year, after a 0.1% contraction in the third quarter.

Draghi said the interest-rate cut should combine with recovering global demand to end the recession in the Eurozone.


“Overall, Euro area economic activity should stabilize and recover gradually in the second half of the year,” Draghi said. But, he warned, “the risks surrounding the economic outlook for the Euro area continue to be on the downside.”


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