ECB Shocks Markets with Rate Cut to Hold Greece

The European Central Bank unexpectedly cut its main refinancing rate by 25 basis points to 1.25% in a surprise move Thursday, acting boldly to support the struggling European economy as a Greek exit from the euro becomes increasingly more likely. The ECB also reduced the interest rate on its deposit facility to 0.5% and the rate on the marginal lending facility to 2.0%.

Breaking News: Greek Prime Minister Papandreou To Resign

ECB President Mario Draghi will explain the Governing Council’s decision today at a news conference at 1:30 p.m. GMT. Draghi just took the reins from former ECB President Jean-Claude Trichet on Tuesday.

The cut marks a reversal in policy after the ECB increased its rates in July and April, becoming the first major central bank to do so. Markets are already looking for hints that the ECB might further cut rates before the end of the year.

The move was wholly unexpected and came despite inflation in the 17-nation euro zone staying at 3.0% for a second month running in October, well above the ECB’s target of just below 2%.

With Draghi in charge, investors will also wait to see whether the ECB will make other policy changes, especially whether it will boost its government bond-buying program.

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The euro fell after the rate decision while markets got a boost.