The European Central Bank cut its key interest rate to a record low on Thursday as the 17-nation economy revealed increasing weakness in recent weeks.
Following its meeting in the Slovak capital Bratislava, the Governing Council led by ECB President Mario Draghi reduced the main refinancing rate by 25 basis points to a record low 0.50 percent.
The latest cut came after the bank held the rate steady at 0.75 percent for nine consecutive months. Though the move was widely expected, analysts fear it may not be enough without efforts to boost bank lending.
The bank also lowered the marginal lending facility rate to 1 percent from 1.50 percent. The deposit rate, which is already at zero, was left unchanged.
The previous change in euro area interest rates was a quarter-point reduction in July 2012.
"The cut in the refi rate will marginally help those peripheral banks borrowing from the ECB, but won't address the disparity in interest rates facing firms and households in different countries or the credit constraints still facing small and medium enterprises," Capital Economics Senior European Economist Jennifer McKeown said.
"Accordingly, the key question now is what measures, if any, Mr Draghi will announce at the press conference to tackle those issues," she said. Draghi will hold the post meeting press conference at 8.30 am ET when he is expected to explain today's rate move.
The steps the bank may favor include some further easing of collateral criteria, or measures to encourage the creation of securitised loans for SMEs, McKeown said.
"A lack of such measures would be a disappointment," the economist said. "But even if they materialise, the ECB will still not be offering as much support to the economy as other central banks."
The latest run of weak economic data had strengthened expectations for a reduction in rates this month. This week, official data showed that Eurozone economic confidence declined more than expected in April and the unemployment rate for the single currency region climbed to a new record of 12.1 percent in March.
Boosting rate cut hopes further, headline inflation slowed to a three-year low of 1.2 percent in April, well below the ECB's target of "below, but close to 2 percent". Core inflation that excludes energy, food, alcohol and tobacco, slowed to 1 percent from 1.5 percent in March.
Recent ECB rhetoric also have hinted at policy easing in the near term, but revealed some dissenting views at the same time. Last week, ECB Vice-President Vitor Constancio said the bank "stands ready to act" if economic conditions in euro area continue to worsen.
On the other hand, ECB Executive Board Member Joerg Asmussen said the pass-through of rate cuts to the periphery would be limited due to impaired monetary policy transmission.
Interest rate reductions would further relax already unprecedentedly easy financing conditions in core economies, he said, while warning that lower interest rates for a longer period can eventually lead to distortions.
Fellow Executive Board member Benoit Coeure also expressed concerns over the situation, last week, and urged institutions to address the discrepancies in borrowing costs to businesses and take steps to ease credit constraints to small firms.
In the quarterly Bank Lending Survey published in April, the ECB said that the banks maintained tight credit standards on loans to both enterprises and households while the demand for loans has also declined.
"A rate cut without additional efforts to repair the transmission mechanism would quickly go up in smoke and could even be regarded as an act of despair," ING Bank Senior Economist Carsten Brzeski said this week.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.