BRATISLAVA — The European Central Bank pared back its key interest rates as expected Thursday amid mounting calls across the eurozone to focus on growth rather than austerity. As widely forecast by analysts, the ECB trimmed its key “refi” refinancing rate by a quarter of a percentage point to a new record low of 0.50 percent. The central bank also cut its marginal lending facility by half a percentage point to 1.00 percent. But it held the interest rate on the deposit facility unchanged at zero percent. ECB President Mario Draghi indicated he was prepared to flex its muscles further in the face of high and rising unemployment and growing evidence that Europe's economy is getting weaker. He said the ECB stood “ready to act if needed.” Eager to jolt banks into lending more freely, Draghi said the ECB would even consider charging banks to deposit funds with the ECB by lowering their deposit rate into negative territory from the current zero percent. That would make room to cut the refinancing rate again — since the bank likes to keep some space between the two rates. Together, the measures announced by the ECB Thursday amounted to a grim recognition: despite record-low interest rates, European banks still remain cautious about lending to consumers and businesses, while some companies don't want to risk borrowing in a slow economy. Draghi also delivered a warning to Europe's political leaders: extraordinary actions by the central bank will not be enough to heal the region's economy. Governments need to accelerate efforts to cut excessive regulations and make Europe a more hospitable place for business. Financial markets had widely anticipated the move, and were hoping as well for some unorthodox measures to boost lending to the wider economy in peripheral eurozone countries where growth remains elusive. The euro jumped to $1.3202 after the announcement, from $1.3180 late on Wednesday in New York. On Wednesday, the US Federal Reserve had kept its easy-money policies in place, and left the door open to stepping up bond purchases if the world's biggest economy slowed under the government's severe “sequester” spending cuts. After keeping the main US interest rate at zero to 0.25 percent, the Fed suggested in a change from previous statements that it would keep open the option of more stimulus — larger bond purchases — if the economy slows. The ECB's decision-making governing council met in the Slovakian capital of Bratislava this month, rather than its headquarters in Frankfurt. Analysts believe the rate cut was unlikely to have a major growth impact, especially given fragmented credit markets. “But any potential help to the eurozone economy in its current state is worthwhile, and a move is certainly justified by consumer price inflation at just 1.2 percent in April now being clearly below target,” Archer said. Capital Economics economist Jennifer McKeown said the cut “in the refi rate will marginally help those peripheral banks borrowing from the ECB, but won't address the disparity in interest rates facing firms and households in different countries or the credit constraints still facing small and medium-sized enterprises (SMEs).” The German banking federation BdB believed that “the extremely low level of interest rates will have only very small effects on the economy and bank lending to businesses.” The euro slumped against the dollar on Thursday after the ECB cut interest rates to an all-time low and its president suggested the possibility of negative deposit rates in the future, while global equity markets rallied. The world's biggest central banks, including the Federal Reserve and the Bank of Japan, are trying to encourage economic growth through bond-buying programs that have pushed interest rates to historic lows and encouraged equities investors. The benchmark S&P 500 index was close to setting an all-time high, and European shares rebounded after earlier declines. The euro slid as low as $1.3038, according to Reuters data, and was last at $1.3046, down 1.0 percent on the day. If negative deposit rates were adopted, euro zone banks would have to pay to deposit money at the central bank, giving them an incentive to lend money rather than hoard it. “You've got the Fed still in stimulus mode and Japan surprising markets with the size of their latest stimulus package. Now you have the ECB cutting rates,” said Todd Salamone, director of research at Schaeffer's Investment “It all adds to the theme that global central banks are in a stimulus mode and that is positive for equities,” he said. The Dow Jones industrial average was up 108.59 points, or 0.74 percent, at 14,809.54. The Standard & Poor's 500 Index was up 13.57 points, or 0.86 percent, at 1,596.27. – Agencies
