European Central Bank cuts main rate to record low 0.25% in surprise move

Bank cuts lending rates amid concerns of disinflation turning into deflation.
Posted By Kristen Butler  |  Updated Nov. 7, 2013 at 8:50 AM
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(UPI) -- In a surprise move Thursday, the European Central Bank cut its key interest rate to a record low 0.25 percent from 0.50 percent.

Facing falling inflation that could turn into deflation, the ECB went against expectations and cut its refinancing rate to 0.25 percent from 0.50 percent, and cut its marginal lending rate by 25 basis points to 0.75 precent from 1.00 percent.

The deposit rate remains at 0 percent.

Earlier on Thursday, the Bank of England left rates unchanged at 0.5 percent. On news of the ECB cuts, the euro dropped quickly to a seven-week low of $1.3356.

Vasileios Gkionakis, head of currencies strategy at UniCredit, says that a confident ECB President Mario Draghi at an upcoming press conference "will provide some cushion to the currency. I wouldn’t see the euro below 1.3370 at the end of the day."

Following the rate cut, bond yields slipped, and the 10-year Bund yield has fallen to 1.69 percent compared with 1.73 percent just before the cut. Analysts say the yield drop in safer markets may be meant to spur investment in riskier bonds.

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