ECB cuts key rate

The European Central Bank (ECB) has cut interest rates by a quarter percentage point under new head Mario Draghi as it tries to boost a weakening economy that's reeling from a government debt crisis that threatens to spread from Greece.

The dramatic debut move from Draghi, which comes earlier than expected by many economists, takes the bank's benchmark rate to 1.25 per cent.

European growth is expected to slow down in the last three months of the year, and the rate cut is aimed at preventing an outright recession. Uncertainty from Europe's debt crisis is a factor as business and consumers are reluctant to spend and investors are worried of the potential for more financial turmoil if Greece defaults on its debts.

The current market turbulence is "likely to dampen the pace of economic growth in the second half of the year and beyond," said Draghi at his post-meeting press conference. That, in turn, would lower the risk of inflation remaining high.

He signalled, however, that the ECB's bond purchases, which have been keeping down borrowing rates for financially weak countries like Italy, are temporary and limited.

Markets had hoped that Draghi would indicate the bank was willing to be more aggressive with the bond purchases.

But Draghi said it was up to governments to fix their finances. "It is pointless to think sovereign bond rates could be brought down for an extended period of time by outside interventions."