The expected move reverses the bank's mid-summer interest rate hike, which was enacted as the economic upturn in the early months of the year was beginning to fade. The bank, then under president Jean-Claude Trichet, was sharply criticized at the time for raising rates before the recovery solidified.
Thursday's move was widely expected and follows a November interest rate reduction from 1.5 percent to 1.25 percent.
Trichet successor Mario Draghi said at a press conference in Frankfurt, Germany, the rate was lowered to "ensure enhanced access of the banking sector to liquidity and to facilitate the functioning of the euro area money market."
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