NEWS

Europe cuts key interest rate to record low

07/05/2012 10:21 EDT | Updated 09/04/2012 05:12 EDT
The European Central Bank, faced with a struggling eurozone economy, cut its key lending rate Thursday by a quarter of a percentage point to a record low 0.75 per cent.

The rate cut was widely expected by economists, though some had hoped for an even bigger cut.

The ECB is hoping that lower rates will persuade businesses and consumers to borrow more to stimulate growth in the region's stumbling economies. Some experts, however, wonder if the cut will accomplish much, since borrowing costs are already very low.

The ECB also lowered its deposit rate to zero from 0.25 per cent. That's designed to encourage banks to lend rather than park their money with the ECB and earn nothing.

"Economic growth in the euro area continues to remain weak, with heightened uncertainty weighing on confidence and sentiment," the ECB said in a statement. GDP in the eurozone was flat in the first quarter of 2012 and the central bank said its indicators suggest that the second quarter will feature a "renewed weakening of economic growth."

Record EU unemployment

The ECB moves follow news earlier this week that unemployment in the 17-country eurozone had risen to a record high 11.1 per cent. Jobless rates in Spain and Greece are both well over 20 per cent.

Lending activity has stalled in much of Europe as banks and businesses worry that the eurozone may suffer further financial turmoil. Worries persist that bankrupt Greece could eventually leave the euro or that Spain could need more bailouts.

Several other central banks took measures Thursday to ease monetary policy in a bid to reverse their economic slumps. The Bank of England injected a further £50 billion ($80 billion) into the ailing British economy.

China also cut its key lending rate for the second time in a month in an effort to reverse its steepest economic slump since the 2008 global crisis.

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