The European Central Bank cut its key interest rate for the first time in 10 months Thursday in a bid to prevent the euro-zone from falling even deeper into recession.
The interest rate on the main refinancing operation was cut by a quarter percentage point to a record low of 0.50%. It was last changed in July 2012.
The bank's governing council, meeting in the Slovak capital of Bratislava, was under intense pressure to cut interest rates as the prospects of recovery this year begin to fade.
Unemployment across the 17 euro-zone states hit a new record just above 12% in March, inflation fell sharply in April and recent surveys suggest the German economy may be slowing, dragged back by the deep recession that is leaving its scars across southern Europe.
Conditions in euro-zone manufacturing deteriorated in April at the fastest pace so far this year, according to the latest Markit Purchasing Managers' Index, with German firms reporting falling output, new orders and employment.
Analysts said the impact of the rate cut would be limited. But any help for the ailing euro-zone economy -- forecast to contract for a second consecutive year in 2013 -- was welcome.
European stocks have rallied and yields on government bonds have fallen since mid-April as investors bet that the ECB would cut rates.
The Organization for Economic Cooperation and Development cut its forecast for the Italian economy Thursday, predicting output would fall by 1.5% in 2013, instead of 1%.
That followed more bad news from southern Europe Tuesday when Spain, the euro-zone's fourth largest economy, reported a seventh consecutive quarter of recession. The annual pace of contraction accelerated in the first three months of this year to 2%.
Global growth concerns are also bolstering the case for a rate cut, even if it has little more than a symbolic impact.
Analysts say a cut will provide limited relief for the weakest euro-zone states because it will do little to reassure banks worried about lending to small and medium-sized firms grappling with deep recessions in their home markets.
Some ECB watchers expect President Mario Draghi to unveil other measures to improve financing conditions, perhaps later Thursday when he holds his monthly news conference.
But even if he does, they're unlikely to include the kind of huge bond buying programs that have been used by other major central banks to support markets and growth.
And while there have been signs that EU leaders may be prepared to ease up on the pace of austerity, the euro-zone is not about to imitate Japan and embark on a new round of short-term borrowing to generate growth. The ECB remains the only game in town.
