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12 December 2011
ECB cuts rate but won’t buy more bonds
The European Central Bank is pinning its hopes of keeping the euro zone economy out of recession with an interest rate cut and by offering more help to the region’s banks.
But it quashed hopes that it would aggressively boost its programme of government bond buying and allow euro zone central banks to lend money to the IMF so it can help fight the debt crisis.
The ECB reduced its key interest rate by a 0.25 percent to 1.0 percent, reversing all of the increases in the last two years and taking it back to the record low reached during the financial crisis in 2009.
ECB President Mario Draghi also unveiled new more gloomy growth forecasts for the region: “The intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty and substantial downside risks.”
On bond buying, Draghi disappointed the markets by firmly played down any suggestion the central bank would step up its purchases of the government bonds of struggling euro zone members.
The interest rate cut was aimed at boosting euro zone growth.
The ECB’s forecasters now expect the region’s economy to have expanded by around 1.6 percent this year and fear it will slip into recession next year.
Inflation is now forecast to be in a range of 1.5-2.5 percent next year. The ECB’s target is close to but below two percent.
