The European Central Bank cut its main interest rate on Thursday and announced a three-pronged drive of unconventional steps to drive down borrowing costs and get the euro zone economy back on its feet.
The ECB lowered the refi rate by a quarter percentage point to a new record low of 1.0 percent.
President Jean-Claude Trichet also revealed that the ECB would join most of the world's other top central banks in launching quantitative easing, after months of deliberation about how far to go to support the recession-bound economy.
The Governing Council decided today to proceed with its enhanced credit support approach, Trichet told a news conference.
The Council decided to buy covered bonds issued by companies in the euro zone, and lend banks unlimited funds for up to 12 months -- double the previous maximum. Trichet also said that the European Investment Bank, the European Union's long-term lending bank, would be allowed to gain access to ECB funding by taking part in the central bank's money market operations.
60 BILLION EUROS
Referring to the covered bonds, he said: I would say at this stage we expect to engage in a program which could be around 60 billion euros. Covered bonds are corporate bonds but holders have access to assets which secure or cover the bond if the issuer becomes insolvent.
The ECB kept the overnight deposit rate, which is acting as a floor for money markets, at 0.25 percent, narrowing the gap between its policy rates instead of cutting the lowest of these to zero. The marginal lending rate was cut by 50 basis points, to 1.75 percent.
The ECB has slashed the refi rate from 4.25 percent since last October. (For graph, click http://graphics.thomsonreuters.com/RNGS/MAY/RATE.jpg)
We have not decided today that the new level of our policy rates was the lowest level, that we could never cross whatever future circumstances would be, he said.
But he added: The Governing Council considers that the present level of interest rates are appropriate taking into account all of information available.