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ECB surprises with rate cuts amid recovery fears

FRANKFURT, Germany (AP) -- The European Central Bank surprised markets by cutting its key interest rate to a record low on Thursday, underling the bank's determination to take action and keep Europe's weak recovery from going into reverse.

The ECB trimmed its benchmark interest rate to 0.05 percent from a previous record low of 0.15 percent. Markets awaited a news conference by ECB President Mario Draghi where further stimulus measures could be announced.

The euro fell to $1.3037 after the announcement, the lowest since July 2013. Lower rates and central bank stimulus can send a country's currency lower _ which would also help European exporters. Stocks rose modestly.

The ECB also cut its deposit rate _ what banks pay to keep their money at the central bank _ to minus 0.2 percent from minus 0.1 percent. The negative rate is an effort to push banks to lend money by imposing a financial penalty for hoarding it in the safety of the ECB's accounts.

“The ECB's decision to cut interest rates further shows just how worried it is about very low and still falling eurozone consumer price inflation, weakening inflation expectations and faltering eurozone economic activity,” said analyst Howard Archer at IHS Global Insight

The benchmark refinancing rate determines what banks pay the ECB for credit. It influences what banks charge businesses and consumers to borrow. Lower rates stimulate more lending and growth. However, lower rates become less effective as a stimulus tool as they approach zero. That is why the ECB is also looking at further measures to boost credit to businesses.

Draghi has said the bank could, if needed, buy large quantities of bonds with new money _ a move called quantitative easing. The hope is banks would use the new money to lend more in the economy, stimulating credit, investment and growth.

Analysts say it may be too early for the announcement of such measures on Thursday. Instead, Draghi could use his post-meeting news conference to give more detail on how the ECB is preparing to take action. In fact, the ECB may wait several more months before deciding, the say.

The bank announced a raft of measures to stimulate credit in June and some bank officials have said they want to wait to see what effect those steps have before approving any more.

Draghi raised expectations for more stimulus on Aug. 22, when he said inflation expectations had fallen. Low inflation of only 0.3 percent is one sign of continuing economic weakness as the 18 countries that use the euro slowly recover from their troubles with too much debt.

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