Many analysts had forecasted a 0.5% reduction in interest rates to help the 16-member eurozone area to face the persistent financial and economic crisis.
The lighter-than-expected intervention, which brought the main eurozone interest rate to a new record low of 1.25%, appears to be aimed at sending a signal to markets that the ECB has more optimistic forecast about future economic recovery.
ECB President Jean-Claude Trichet was, however, very cautious at assessing the economic situation and the outlook for the coming months. He stuck to the official eurozone forecast of "very subdued" economic activity in 2009, and gradual recovery in 2010. However, "there may be stronger than anticipated positive effects due to the decrease in commodity prices and to policy measures taken," he told a press conference in Frankfurt.
"On the other hand, there are concerns that the turmoil in financial markets could have a stronger impact on the real economy, as well as that protectionist pressures could intensify, and that there could be adverse developments in the world economy stemming from a disorderly correction of global imbalances".
The ECB president did not rule out further cuts at the next board meeting on 23 April. He also did not exclude other unconventional monetary measures to help the economy recover. Other members of the ECB board had spoken earlier of the possibility of using so-called 'quantitative easing', such as buying corporate bonds, thus increasing the amount of euros in circulation without the traditional intervention on rates.
As for inflation, Trichet announced a deflationary scenario for mid-2009, when prices are expected to "temporarily" decline throughout the euro zone. According to Eurostat, in March inflation grew 0.6% in the euro zone, compared to 1.2% in February. The official ECB target is an inflation rate "below, but close to, 2%". In the middle of the year, growth is expected to be negative, and will increase again later.
Trichet downgraded the economic risks of such a trend, and underlined the positive effects of lower prices, which are "supporting real disposable income and thus consumption".
The ECB move pushed the euro up against the main currencies, and made it partially recover the losses it recorded during the day against the British pound.
