The European Central Bank yesterday responded to fears of deflation across the eurozone by unexpectedly cutting interest rates to a record low and insisting that it had more weapons in its “artillery” to prevent falling prices.
Mario Draghi strengthened his reputation as a bolder ECB head than his predecessor, presiding over a cut which left the central bank’s benchmark main refinancing rate at 0.25 per cent and sent the euro tumbling against the dollar. .
A fall in inflation last month to less than half the ECB’s target of just under 2 per cent has heightened concerns that disinflation, or even a period of Japan-style deflation, could add to the currency bloc’s economic woes. Though most analysts thought the ECB would wait until December to cut, Mr Draghi said there was now a possibility that the bloc could “experience a prolonged period of low inflation”.