Brussels, 02/05/2013 (Agence Europe) - Faced with the gloomy economic outlook for the eurozone, the European Central Bank (ECB) announced on Thursday 2 May that it has reduced the euro interest rate by 0.25% to the record low of 0.5%.
The president of the ECB, Mario Draghi, said there had been “strong consensus” on the interest rate cut in the ECB Governing Council. At the monthly press conference, this time in Bratislava, Draghi said the ECB would continue with its accommodating policy as long as required and “stood ready to act if needed”. He said that, against the backdrop of prolonged recession and rising unemployment, the new reduction in interest rates would continue to support the prospects of recovery. Eurozone GDP fell by 0.6% in the fourth quarter of 2012, following a 0.1% fall in the previous quarter. He said that the situation on the labour market was still weak, but inflation forecasts were “firmly anchored” with a slight decline from 1.7% to 1.2% from March to April “reflecting a significant fall in energy prices”.
Anxious to make it easier for companies to gain finance, “the Governing Council has decided to start consultations with other European institutions on initiatives to promote a functioning market for asset-backed securities collateralised by loans to non-financial corporations”, explained Draghi. The ECB will continue with its system of fixed-rate loans and unlimited minimum allocation until July 2014.
Draghi said the ECB was open to the idea of negative interest rates on savings to encourage banks to lend to the real economy, adding: “It is essential that the fragmentation of euro area credit markets continues to decline further and that the resilience of banks is strengthened where needed”, calling for rapid introduction of banking union based on EU bank supervision and resolution systems.
Draghi urged member states to continue with the reform process. “Don't unravel the progress you've achieved”, he said, admitting that “fiscal consolidation is contractionary in the short and medium term”. To limit the negative impact of this, Draghi recommended cutting expenditure rather than raising taxes. He regretted the way that many countries had had to urgently raise taxes in a region of the world where taxation is already very high and said that this should be re-balanced. The ECB head said that the bank could not substitute for government action and was “not in the business of monetary financing”. The ECB has put into circulation a new five euro banknote that is more difficult to forge. (EL/transl.fl)