Business

ECB cuts interest rates to 1.25%

New ECB head Mario Draghi
Image caption Mario Draghi took over as head of the ECB this week

The European Central Bank (ECB) has unexpectedly cut eurozone interest rates to 1.25% from 1.5%.

New ECB president Mario Draghi told a news conference that growth in the eurozone was likely to remain weak.

He said that Europe's financial crisis and a slowdown in global growth meant the euro area faced an "environment of high uncertainty".

G20 leaders are meeting in Cannes on Thursday and Friday, with Europe's debt crisis topping the agenda.

Some of the risks to growth were already evident and this "makes a significant downward revision to forecasts and projections for average real GDP [gross domestic product] growth in 2012 very likely", Mr Draghi said.

Inflation in the eurozone, currently 3%, would remain at "elevated" levels for some months, driven by higher energy and commodity prices.

But he forecast that inflation would fall to below 2% during 2012.

Mr Draghi took over as president of the bank this week, replacing Jean-Claude Trichet, who held the post for eight years.

Last month, the bank announced new, one-year emergency loans to banks to help them deal with the debt crisis. It also said it would help the banks by spending 40bn euros (£35bn) buying certain assets from them.

The ECB raised interest rates from 1.25% to 1.5% in July.

The bank was criticised in some quarters for raising rates given weak growth and lack of confidence in the eurozone economy.

But Mr Trichet defended the move, saying the primary role of the bank was to keep inflation under control.

Eurozone inflation currently stands at 3%, well above the ECB's target of close to but below 2%.

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