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ECB's Draghi: Easy Monetary Stance as Long as Needed

Mario Draghi, President of the European Central Bank
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Mario Draghi, President of the European Central Bank

The European Central Bank on Thursday cut its main refinancing rate by 25 basis points to 0.5 percent, the first rate cut since July 2012 in a move aimed at boosting the ailing euro zone economy.

But it failed to announce any new measures to help the economy directly.

"Our monetary policy stance will remain accommodative for as long as is needed," Mario Draghi, the President of the European Central Bank said at a press conference after the decision.

The bank also said it would keep its main refinancing operations until at least July 2014. Those operations, known as "fixed rate full allotment" allow banks under stress to access unlimited ECB liquidity at a fixed rate in return for collateral.

"The fixed rate full allotment will basically represent liquidity insurance for the banking system, so frankly, there can't be fears of lack of funding for not lending," Draghi said. "In other words, this is a kind of measure that benefits all banks."

The 25 basis point rate cut was widely expected after data this week showed record high unemployment for the euro zone and lower-than-expected inflation.

Calls for the ECB to announce a funding scheme for the real economy have grown stronger in recent weeks amid evidence that the ECB's cheap loans to banks have not trickled down to small- and medium-sized enterprises.

But while Draghi acknowledged weakness in bank lending, he blamed it on low demand for credit and risk aversion in the economy.

(Read More: ECB Rate Cut Could Be Too Little, Too Late)

The press conference wasn't without its moment of drama. The euro fell sharply against the dollar after Draghi said the central bank had an open mind about negative deposit rates, to encourage banks to lend rather than park money at the ECB.

"On the deposit facility rate, we said it in the past, we are technically ready... And we will again look at this with an open mind and we stand ready to act if needed," Draghi said.

European stock markets, which rallied after the rate cut, turned negative during the press conference, with some analysts pointing out that Draghi had failed to live up to expectations.

(Read More: ECB Seen Joining Central Banks With Rate Cuts)

"I don't think it is something that fundamentally transforms the outlook for the market, nor is it (something) that fundamentally changes the outlook for the macro economy," Jens Larsen, Chief European Economist at RBC Capital Markets told CNBC after the decision.

Contact Europe: Economy

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