ECB Cuts Key Rate to Historic Low

Move was widely expected, but a 2nd rate cut was more surprising
By Kate Seamons,  Newser Staff
Posted Jul 5, 2012 10:02 AM CDT
ECB Cuts Key Rate to Historic Low
President of European Central Bank Mario Draghi adjusts his glasses during a press conference in Frankfurt, Germany, Thursday, July 5, 2012.   (AP Photo/Michael Probst)

(Newser) – The European Central Bank today cut its key interest rate by a quarter-point to .75%, its lowest level yet, in a move the New York Times describes as the ECB's "most aggressive" since the eurozone crisis hit. Though the move was widely expected, it does bring the benchmark rate to what was once considered the lower bound on the official rate. The action will make it cheaper for businesses and consumers to take loans. In a second, more surprising, move, the ECB also cut by a quarter-point the interest rate it pays banks on overnight deposits, bringing that to zero and giving banks reason to lend the money, rather than sock it away with the ECB.

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The Times notes that the moves leave the ECB with few crisis-combating tools left. The next step would probably involve a massive bond-buying spree, which could anger Germany because it doesn't want to get stuck bearing the brunt of any losses the ECB could suffer on its bond holdings. Today's other major rate news comes from China: The AP reports the People's Bank of China cut its main lending rate by 0.31 points to 6% and reduced its deposit rate by a quarter-point to 3%, moves analysts believe hint at deepening economic concern. (Read more European Central Bank stories.)

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