The cut in the ECB’s main policy rate from 1.5 per cent to 1.25 per cent was justified by a “mild recession” looming in the eurozone by the end of this year and significant downward revisions to the bank’s 2012 growth forecast, Mr Draghi said. The interest rate decision suggested a pragmatic approach to dealing with the escalating eurozone crisis by the normally cautious ECB.
The new ECB president was circumspect about the central bank’s government bond buying programme which has seen it buying €100 billion of mainly Italian and Spanish debt since early August. It was “pointless to think” that governments’ borrowing costs could be brought down for a protracted period by “external” intervention, he said. In a message clearly aimed at Rome, he added: “The real answer is to rely on the countries’ capacity to reform with the right economic policies”.
Like his predessor, Jean-Claude Trichet, the new president also ruled out the ECB acting explicitly as “lender of last resort” to eurozone governments.
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