Unexpectedly, the European Central Bank responded to mounting market pressure and speculation of a rate cut this meeting as Mario Draghi has been in charge since November 1, where the Governing Council voted unanimously to cut key interest rates by quarter basis point to 1.25%, the third move this year, while the Bank also cut the marginal lending facility by 25 bp to 2.00% also reduced the deposit facility to 0.50% from 0.75%.
At the ECB press conference, Mario Draghi, the fresh new President said in regards to growth that significant cut to growth forecasts are possible due to the fact that some downside growth risks have materialized, while downside risks to growth reflects high uncertainty and high energy prices could damp growth.
Concerning inflation, the President said inflation risks remain broadly balanced and the Bank expects inflation to undershoot the 2% target next year. Draghi also said that labor-market reforms are essential to avoid jobs-recession.
Draghi also said that full allotment will provide banks with enough liquidity, and added that non-standard measures and ECB bond purchases program are temporary in nature; however, the Bank plans must not lead to excessive deleveraging. The President also said that ECB welcomed the European Union agreement to raise required ratios for bank to 9%.
Draghi also called on all the euro-area governments to honor sovereign signatures and take all the measures needed to prevent the debt crisis from expanding further and also said that the October 26 comprehensive plan must be adopted rapidly.