The European Central Bank's decision to cut interest rates will maintain price stability in the euro zone economy, which is undergoing a severe downturn, ECB President Jean-Claude Trichet said.
The ECB cut its main refinancing rate by 25 basis points to a record low 1.25 per cent but analysts had expected a 50 bps cut.
"After today's decision we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of the euro area households," he told a news conference.
"The world economy, including the euro area, is undergoing a severe downturn," he said. "Both global and euro area demand are likely to remain very weak over 2009 before gradually recovering in the course of 2010."
The ECB also cut the overnight deposit rate, which is acting as a floor for money markets, to 0.25 per cent.
Indicators of inflation expectations for the medium term remained firmly anchored to the Governing Council's aim of keeping inflation below, but close to 2 per cent, he added.
Reuters