The European Central Bank has cut the cost of borrowing in the eurozone to a new record low with the region’s economic recovery still weak.
The Bank’s main interest rate falls to 0.25 percent.
The cut sent the euro sharply lower, boosted government bond prices and saw the region’s share markets hit fresh five-year highs.
It is the second reduction this year; in May the benchmark rate – which affects how much people pay for loans – was reduced to half a percent.
The move by Bank President Mario Draghi and his policymakers surprised many in the financial markets and highlights the ECB’s concern about the slowdown in eurozone inflation.
The decision comes after a shock slump in eurozone inflation.
In October it was at 0.7 percent. That is far below the ECB’s target which is just under two percent and it has sparked fears the eurozone’s economic recovery could stall.
The feeling in the market is that a rate cut will do little to boost the economy or fight deflation, but will weaken the currently strong euro, which can help exports.
“Deflationary risks and the stronger euro seem to have motivated the ECB’s move. It is obvious that the ECB under president Draghi has become much more pro-active than under any of his predecessors,” said ING economist Carsten Brzeski.
Calls from government ministers and industry – the loudest from Italy – for the ECB to loosen policy to help bring down the euro’s exchange rate had also put pressure on the ECB Governing Council.