The European Central Bank cut its key interest rates today amid concerns that slowing inflation in the euro area could turn into a vicious cycle of falling prices.
The ECB took financial markets by surprise by cutting its central "refi" or refinancing rate by a quarter of a percentage point to a new record low of 0.25 per cent.
Speculation of a pending rate cut had briefly surged when new data showed eurozone inflation slowing unexpectedly to a four-year low of 0.7 per cent last month, raising the spectre of deflation.
Nevertheless, most ECB watchers had thought the bank would keep its gunpowder dry at its monthly policy meeting at least until next time, when it would have compiled new inflation and growth forecasts.
The central bank also trimmed another key rate, the interest rate on its marginal lending facility by 0.25 percentage point to 0.75 per cent, but it held the interest rates on its deposit facility at zero.
The euro fell sharply against the dollar on the news.
