Fri, Nov 04, 2011 - Page 12 News List

ECB interest rate cut surprises market

Reuters, FRANKFURT, Germany

The European Central Bank (ECB) cut interest rates by a quarter point to 1.25 percent in a surprise move yesterday, acting boldly to support the ailing eurozone economy at European Central Bank 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 bank is ready to boost its bond purchases to calm tensions in the eurozone.

The decision to cut rates was unexpected and came despite inflation in the 17-country eurozone staying at 3 percent for a second month running last month, 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.

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 two-year bond yields fell and December Euribor future jumped 13 basis points.

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

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