European Central Bank drops its lending rates, citing low inflation

Nov. 7, 2013 at 9:06 AM
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FRANKFURT, Germany, Nov. 7 (UPI) -- The European Central Bank lowered its key lending rates Thursday, dropping its main bank-to-bank rate from 0.5 percent to 0.25 percent.

The bank said its marginal lending rate facility, generally used for emergency loans, would be decreased by 25 basis points to 0.75 percent.

Some economists had predicted the central bank for the 17-nation eurozone would take actions to stimulate the economy before the end of the year due to very low inflation rates and a sluggish recovery.

Rates were lowered "given the latest indications of further diminishing underlying price pressures in the euro area over the medium term, starting from currently low annual inflation rates of below 1 percent," ECB President Mario Draghi said at a press conference.

"In keeping with this picture, monetary and, in particular, credit dynamics remain subdued," he said.

The bank has a target inflation rate of 2 percent. Inflation below 1 percent, however, is in danger of moving to deflation, which may sound like an advantage to consumers, but is often categorized by hesitation, given consumers wait to buy durable goods in the expectation that price will go down.

Draghi defined the goal as "our aim of maintaining inflation rates below, but close to 2 percent."

He also said the bank's policy makers "expect the key ECB interest rates to remain at present or lower levels for an extended period of time."

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