ECB cuts interest rates to historic low The European Central Bank has cut its main interest rate to an historic low, responding to increasing gloom over the prospects for the eurozone economy with a move that also offers relief to the region's struggling banks. In a decision widely anticipated by financial markets, the ECB on Thursday reduced its main policy rate by a quarter of a percentage point to 0.75 per cent, the first time it has pushed the rate under 1 per cent. The ECB also cut the interest rate on its deposit facility to zero, marking a dramatic step in attempts by the central bank to reduce general market interest rates and stimulate inter-bank lending. The deposit rate is the rate the ECB pays banks for their overnight deposits at the central bank. As such it in effect sets a floor for market rates, since banks have no incentive to lend to each other for less reward than they get for parking money safely at the central bank. The move came as the People's Bank of China cut its benchmark lending rate by 31 basis points - the second cut in less than a month, and the Bank of England held its rate but increased the level of quantitative easing by £50bn to £375bn. With the rate cut the ECB hopes to underpin the eurozone economy - although policymakers have acknowledged that the impact of a cut with rates already low is limited. The cut will also help banks in countries such as Spain that are borrowing heavily from the ECB, since the price of that borrowing is linked to the main interest rate. Thursday's decision follows broad ECB approval for measures taken by EU leaders at a summit last month, when the foundations were laid for the ECB to begin eurozone-wide banking supervision and for banks in Spain to use EU bailout funds directly. Mario Draghi, ECB president, said the summit outcomes contributed to the "resilience" of the eurozone and were "fully in line" with the ECB's main goal of price stability. However, Mr Draghi is likely to reject any idea that the rate cut is a "quid pro quo" for decisions taken at the summit. Bank policymakers discussed a rate cut last month, since when fresh data has suggested increased risks to the eurozone economy, with concern over the outlook for Germany - hitherto the brightest spot in the region. However, German factory orders unexpectedly rose in May, driven by eurozone demand, the country's economy ministry said on Thursday. Receding inflationary pressures have also paved the way for the Bank's rates decision.