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Draghi: Fall in HICP is reason for cut in ECB's key interest rate

A significant downward development in the Harmonised Index of Consumer Prices (HICP) was the main reason for the reduction in the European Central Bank's benchmark interest rate to 0.5 percent, ECB President Mario Draghi said at a press conference in Bratislava on Thursday, May 2. The prices of food and energy also rose at a pace below expectations, but the gap was not so significant, said Draghi.

A significant downward development in the Harmonised Index of Consumer Prices (HICP) was the main reason for the reduction in the European Central Bank's benchmark interest rate to 0.5 percent, ECB President Mario Draghi said at a press conference in Bratislava on Thursday, May 2. The prices of food and energy also rose at a pace below expectations, but the gap was not so significant, said Draghi.

"Inflation expectations are well anchored in a medium-term perspective," stated Draghi, as quoted by the TASR newswire. The ECB's decision also reflected the latest developments in providing loans, which have been relatively slow, said Draghi, who pointed out that the ECB hasn't changed its policy of allocating liquidity under fixed interest rates, which won't change until at least June or July 2014.

Concerning possible further reductions in the key interest rate, Draghi said that the ECB is ready to act when necessary and will take into account all incoming data and monitor further developments. The ECB reduced the key interest rate by 0.25 percentage points on Thursday after year-on-year inflation slowed to 1.2 percent, well below the ECB's target level; and the record-breaking unemployment rate, which reached 12.1 percent in March. The Sme daily wrote that this was the first time that the ECB had cut interest rates at a foreign session outside its Frankfurt headquarters.

Sources: TASR, Sme

Compiled by Zuzana Vilikovská from press reports
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