ECB cuts key interest rate by 25 bps to 0.75 per cent
05 Jul 2012
The European Central Bank (ECB) today announced a reduction in its key policy interest rate to a record low of 0.75 per cent in a bid to stimulate the sagging euro zone economy.
''The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 0.75 per cent, starting from the operation to be settled on 11 July 2012,'' ECB said in a release.
ECB also reduced its deposit rate to zero, thereby helping banks in need to borrow from the central bank and lend to other banks in the overnight money market.
The reduction in interest rate from 0.25 per cent to a zero rate regime will prod banks to lend money in the inter-bank money market where they receive rates around 0.3 per cent.
However, cutting the deposit rate to zero may not necessarily push banks to lend in the inter-bank market as the fear of insolvency remains.
The interest rate on the marginal lending facility will be brought down by 25 basis points to 1.50 per cent, with effect from 11 July 2012.
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