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ECB Cuts Interest Rates to All Time Low and Unveils Stimulus Program

Julia Sun
9/04/14 12:18 PM EDT
The European Central Bank cut interest rates by 10 basis points. That was a surprise to many people. The ECB's main lending rate is now 0.05%, the lowest ever. The Euro slipped to a 14-month low against the dollar and a 21-month low against the Swiss franc at the end of the European day. ECB president Mario Draghi said the cut reflects the current monetary and economic state in the Eurozone. The ECB's European Union GDP forecast was trimmed 0.1% for both 2014 and 2015 to 0.9% and 1.6% respectively. Draghi also warns that geopolitical tensions could pull back growth. He said, "The Governing Council sees the risks surrounding the economic outlook for the euro area on the downside. In particular, the loss in economic momentum may dampen private investment, and heightened geopolitical risks could have a further negative impact." In order to defend the slowdown, ECB announced a program to buy bonds worth up to 500 billion euros. The purchase will begin this October and last for three years. ECB also cut this year's Inflation forecast to 0.6%, although the current inflation is already lower than that and this forecast revision appears to be an afterthought.

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