ECB cuts rate to 1.25 pct

Bloomberg

The decision by the Frankfurt-based ECB was predicted by just four of the 55 economists in a Bloomberg News survey. Forty-nine said the key lending rate would be lowered by a half point. The rate for overnight deposits at the central bank was cut to 0.25 percent from 0.5 percent.

As rates edge closer to zero, officials debate the merits of following the Federal Reserve and the Bank of England in buying assets. While Vice President Lucas Papademos says the ECB could purchase corporate debt, council members Juergen Stark and Axel Weber have signaled they’re opposed to such a move, suggesting the council is split on the scope of new measures.

"The ECB is merely buying time" with yesterday’s quarter-point cut, said Aurelio Maccario, chief euro region economist at UniCredit Group in Milan who correctly forecast the move. "It also means that it doesn’t let the deposit rate drop to zero, which would kill off the interbank lending market. There is a lot of debate in the council over what to do next."

At 1.25 percent the main rate is the lowest since the ECB took charge of monetary policy in 1999. The decision came as leaders from the Group of 20 nations met in London to discuss ways to rescue the global economy.