Updated from 7:56 a.m. EST

The European Central Bank cut its benchmark rate Thursday by half a percentage point to 2%, its lowest level since December 2005.

The size of the cut in interest rates was widely expected as the ECG deals with increasingly grim economic data and a sharper than expected drop in inflation, as it tries to steer the 16-nation euro zone economy away from a deep and prolonged recession.

"Despite some apparent earlier reluctance to cut interest rates significantly in January after reducing them by 175 basis points over the previous three months, the ECB really had little option but to act again given the clear, widespread evidence that the euro zone recession is deepening," IHS Global Insight economist Howard Archer said after Thursday's decision.

Even though the ECB has reduced interest rates on three occasions since October from a high of 4.25%, its actions have been dwarfed by the more aggressive cuts enacted by the

Federal Reserve

and the Bank of England.

In an unprecedented move last month, the Fed ratcheted down its rate to hover between zero and 0.25%. The Bank of England cut its rate last week by half a percentage point to 1.5%.

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