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President of the European Central Bank Mario Draghi looks at school children holding the newly introduced 5 Euro banknotes after a news conference during the Meeting of the Governing Council of the European Central Bank in Bratislava.

President of the European Central Bank Mario Draghi looks at school children holding the newly introduced 5 Euro banknotes after a news conference during the Meeting of the Governing Council of the European Central Bank in Bratislava.

President of the European Central Bank Mario Draghi looks at school children holding the newly introduced 5 Euro banknotes after a news conference during the Meeting of the Governing Council of the European Central Bank in Bratislava.

When central banks cut their policy interest rate, this is meant to cut the cost of funds to banks and work through the financial system, resulting in greater, and cheaper, availability of credit. Central banks around the world have cut rates sharply, almost to zero, since the onset of the Great Recession and some have gone further, resorting to direct interventions to stimulate private sector credit.

At its meeting in Bratislava on Thursday the European Central Bank decided to cut its principal policy interest rate from 0.75 per cent to 0.5 per cent, the lowest it has ever been. ECB president Mario Draghi explained the move as a response to the continuing signs of recession and the weakening threat of price inflation.


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