Open

Coming up

Don't miss

Replay


LATEST SHOWS

THE INTERVIEW

'We have to build a new Tunisia', says the president of the Tunisian Parliament

Read more

FACE-OFF

France on alert after attacks: a case of collective hysteria?

Read more

THE INTERVIEW

'Beijing needs to revaluate its policy in the Tibetan areas', says FM of the Tibetan government-in-exile

Read more

INSIDE THE AMERICAS

Uruguay: freed Guantanamo detainees try to adjust to normal life

Read more

MIDDLE EAST MATTERS

Turkey: Inside the Alevi community

Read more

FOCUS

China: A tense Christmas in Wenzhou

Read more

DEBATE

Pope's Scathing Tidings: Pontiff Blasts 'Illnesses' at Vatican's Heart (part 2)

Read more

DEBATE

Pope's Scathing Tidings: Pontiff Blasts 'Illnesses' at Vatican's Heart

Read more

WEB NEWS

Gaza children draw what their future will look like

Read more

Europe

European Central Bank slashes interest rates

Video by Kethevane GORJESTANI

Text by News Wires

Latest update : 2011-11-03

The European Central Bank cut key interest rates by a quarter point to 1.25 percent at new President Mario Draghi’s first policy meeting in charge Thursday, in a surprise move intended to bolster the eurozone economy.

REUTERS - The European Central Bank cut interest rates by a quarter point to 1.25 percent in a surprise move on Thursday, acting boldly to support the ailing euro zone economy at President Mario Draghi's first policy meeting in charge.

The move gave an immediate boost to stock markets, which will be looking for any signal at Draghi's first post-policy meeting news conference on whether the ECB is ready to boost its bond purchases to calm tensions in the euro area.

The Italian has walked into a maelstrom in his first week at the ECB's helm, with euro zone leaders contemplating a future without Greece and economic policy paralysis in his home country threatening to push Rome into the eye of the storm.

The decision to cut rates was unexpected and came despite inflation in the 17-country euro zone staying at 3.0 percent for a second month running in October, well above the ECB's target of just below 2 percent.

"What a starter. It is obvious that the ECB has caught the crisis virus and is trying everything it can to prevent a full-fledged recession," ING economist Carsten Brzeski said.

"Now, the big question for the press conference is whether the ECB is also willing to do everything to prevent a further escalation of the sovereign debt crisis, becoming the unconditional lender of last resort of the euro zone."

The euro fell after the rate decision and stock markets caught a tailwind, with an index of European top shares up 2.3 percent on the day. German 2-year bond yields fell and December Euribor future jumped 13 basis points.

European leaders said earlier they were prepared for Greece to leave the euro zone to preserve their 12-year-old single currency if Athens does not decide quickly to implement a bailout programme, putting the likes of Italy and Spain, and even France, firmly in the markets' sights.

Draghi will join the leaders in Cannes, France, after his debut news conference as ECB president at 1330 GMT at which he will give a statement on the Governing Council's policy decision before taking journalists' questions.

Crucial will be any indication Draghi gives about carrying on, or even scaling up, the ECB's bond-buy programme, a controversial tool that has led to the resignation of two German policymakers.

Europe's ultimatum to Greece, after Prime Minister George Papandreou's decision to call a referendum on a bailout plan, has deepened the crisis and raised pressure on the ECB, which many analysts see as the only institution with the firepower to bring calm.

Bond buying

Draghi succeeded France's Jean-Claude Trichet as ECB chief on Tuesday -- a day that saw the ECB buy Spanish and Italian bonds but barely manage to cap a rise in yields on the debt of the euro zone's third largest economy.

"I'm looking for something but I expect him to stick to the Trichet language and say 'it's still ongoing'," Brzeski said of the bond-buy programme.

Draghi must balance an eagerness to curry favour with the German contingent at the ECB against growing financial market pressure to intervene on a bigger scale to lower the borrowing costs of Italy and Spain.

The premiums investors have to pay to hold Italian and French 10-year government debt over benchmark German Bunds rose to their highest in the euro era on Thursday with signs growing that the Greek government may fall.

Draghi appeared to indicate last week that he stood ready to help tackle the debt crisis by going on buying the bonds of troubled states, though Trichet told Reuters the Italian's remarks had been over-interpreted.

Trichet had signalled previously that the ECB was keen to withdraw from the bond-buying policy once the euro zone's EFSF rescue fund gained new powers to intervene on bond markets.

Date created : 2011-11-03

  • G20 CANNES SUMMIT

    LIVE: Greek crisis dominates G20 Cannes summit

    Read more

  • GREECE

    Greek leaders break ranks over referendum on bailout

    Read more

  • BANKING

    BNP sees 72% drop in Q3 profit after Greek haircut deal

    Read more

COMMENT(S)