ECB cuts interest rates to aid euro recovery

The benchmark interest rate was cut by 25 basis points to a new record low of 0.50% amid signs the Euro area is struggling to overcome recession with unemployment still rising and economic surveys suggesting weaker than expected growth.

Inflation within the eurozone fell to 1.2% in April, undershooting the European Central Bank's target of below but close to 2%, easing one potential obstacle to a rate cut.

The move, which represented the first rate drop by the ECB in 10 months, was widely expected after president Mario Draghi, said last month that the bank stood ready to act despite his insistence that governments did more.

Draghi said the governing council had been keen to extend the provision of credit.

"The cut in interest rates should contribute to support prospects for a recovery later in the year," he said, while pledging monetary policy would remain accommodative.

In theory, the cut will help companies by lowering borrowing costs for banks that have borrowed from the ECB so they can loan more.

Economists, however, warned it may not have much direct effect since banks are not passing on low rates in indebted countries that need help the most.

In Germany, the ECB had also faced resistance to a rate cut with even German Chancellor Angela Merkel suggesting the ECB would have to raise rates if it were looking at Germany alone.

German insurers and the county's dominant savings and cooperative banking sector also joined up to speak out against looser ECB monetary policy, saying it would have little economic impact and undermine savings needed to protect the country's rapidly ageing population.