The ECB cut interest rates to 1% as they slowly face up to the extent of the recession in the Eurozone.
The German economy is facing a large drop of 6% in GDP this year due to the global recession and strong Euro.
The lower interest rate may make the Euro less attractive as Euro rates become closer to US and UK rates. A fall in the Euro would help German and Euro exporters regain competitiveness.
Lower interest rates may encourage borrowing and consumption. But, in the current climate, the impact on boosting investment and spending is likely to be low.
However, the ECB approach still shows a greater hesitancy to provide a strong monetary boost. This reflects the historical tendency for the ECB to give greater importance to the threat of inflation.
The ECB may still need to do a lot more to deal with the scale of the recession and prospect of deflation in the Eurozone area.