The ECB lowered its benchmark lending rate by a quarter of a percentage point to a record low 0.75%, in line with market expectations. The central bank also lowered the deposit rate on money held at the ECB overnight to 0% from 0.25%, which acts as a floor for the money market. The interest rate on a marginal lending facility was decreased to 1.5%. Cutting the benchmark rate will lower the cost of ECB loans.
The new record low interest rate cuts follows actions taken last week in the euro area at the EU Summit by leaders to strengthen market confidence in their shared euro currency bloc.
Euro area leaders agreed to establish a new single banking supervisor through the ECB to keep bank bailouts from bankrupting countries and assist troubled countries in need of bailout help.
The ECB interest rate cut today followed a rate cut by China’s central bank along with new stimulus measures taken by the Bank of England to help contain a slowing global economy.
The Bank of England held rates steady at 0.5% and agreed to support an additional £50 billion in asset purchases, increasing its total to £375 billion.
China’s central bank lowered its one year lending rate by 0.31 percentage point to 6% while reducing its one year benchmark deposit rates by 0.25 percentage point to 3%.
Earlier in the week, China’s manufacturing sector showed increased weakness in June.
A purchasing managers’ index for China fell to 48.2 in June from 48.4 in May.
Beijing-based statistics bureau and China Federation of Logistics and Purchasing fell to 50.2 in June from 50.4 in May.