FRANKFURT, Germany — The European Central Bank cut its key interest rate to a record low 0.50 percent Thursday and announced other measures to spur lending and help lift the euro area out of a stubborn recession.
ECB President Mario Draghi said the bank 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,” but he also implored European governments — which responded to the region’s debt crisis by slashing spending — to do more to stimulate economic growth.
On Wednesday, the U.S. Federal Reserve signaled it wouldn’t rule out taking more action to boost growth and Fed Chairman Ben Bernanke warned America’s political leaders that their policies were holding back the economy.
The ECB lowered its benchmark refinancing rate from 0.75 percent, as expected, at a meeting of its rate-setting council in Bratislava, Slovakia. And out of concern that Europe’s financial industry is lending too cautiously and holding back business investment, the ECB also extended its offer of unlimited, cheap loans to banks at least through July 2014. Previously, the ECB had planned to end the program as soon as this July.
To jolt banks into lending more freely, Draghi said the ECB would even consider charging banks to deposit funds with the ECB. Since 2008, the ECB has reduced the interest rate it pays to banks on deposits from 3.25 percent to zero, creating an incentive for them to lend that money out instead.
Together, the measures announced by the ECB Thursday amounted to a grim recognition: Despite record-low interest rates, European banks still remain risk-averse, 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.
The economy of the 17 European Union countries that use the euro certainly needs a boost. The ECB says the eurozone will shrink 0.5 percent for all of this year and unemployment is at 12.1 percent.