European Central Bank cuts key rate by 50 bps to 2.00 per cent

The governing council of the European Central Bank (ECB) today announced a 50 basis point reduction in its key lending rate, from 2.50 per cent to 2.00 per cent, beginning the operation to be settled on 21 January.

ECB cut the interest rate on the main refinancing operations of the Eurosystem by 50 basis points to 2.00 for all, as the deepening recession pressed policy makers into action.

ECB said the interest rate on the marginal lending facility will be set at 3.00 per cent, while the interest rate on the deposit facility will be set at 1.00 per cent, with effect from 21 January.

''These decisions are in accordance with the governing council's decision on 18 December 2008 to restore the width of the corridor of standing facility rates around the interest rate on the main refinancing operation to 200 basis points,'' an ECB release said.

The news boosted the euro, which turned higher against the US dollar. The European Central Bank also left the door wide open for more interest rate cuts that should further stimulate the economy.

The euro was trading at $1.3175, up 0.1 per cent, up from $1.3110 before ECB president Jean-Claude Trichet announced the decision at a press conference.

Analysts expects the Frankfurt-based central bank to reduce the benchmark rate by another 50 basis points in March.

The ECB still has the highest rates among the Group of Seven industrialised nations.

The US Federal Reserve cut its key rate to 0 to 0.25 per cent, the Bank of England cut its rate to 1.5 per cent and the Japanese and Swiss rates are also close to zero. Canada's rate is at 1.5 per cent.

The ECB has reduced its benchmark by 225 basis points since early October. Last month it lowered the rate by 75 points, its biggest step ever.