The European Central Bank on Thursday cut its main interest rate by a half percentage point to 1.5 percent, dropping the cost of borrowing in the 16 countries that use the euro to a new record low amid grim economic news. The ECB's decision to slash the main refinancing rate for the euro zone, which has 330 million people and accounts for more than 15 percent of the world's gross domestic product, was in line with expectations. The Bank of England earlier Thursday also cut its rates by a half percentage point, to a new low of 0.5 percent, and announced measures to go further in stimulating the sagging economy by expanding the money supply. The ECB made a half-point cut in January to 2 percent — its previous record low — but left rates unchanged last month. ECB President Jean-Claude Trichet was to discuss the latest decision at a news conference later Thursday. The euro zone fell into recession last year. The gloom deepened in the fourth quarter, when its economy shrank by 1.5 percent compared with the previous three months. Business and consumer confidence in the euro zone hit a new low in February, a sign that the recession will deepen again in the current quarter. Unemployment has been rising. An estimate released Monday showed that euro-zone inflation crept up to 1.2 percent in February from a near 10-year low of 1.1 percent the previous month, but that was still well below the ECB's target rate of "close to but below" 2 percent. That fueled expectations that the ECB would cut rates on Thursday. Both the euro and the pound were down after the decisions by nearly one percent against the dollar at $1.2542 and $1.4065. Bank of New York Mellon currency strategist Neil Mellor said there's "little upside" for the pound on the basis of the Bank of England's rate cut and its announcement that it is getting ready to pump 75 billion pounds into the economy. "If investors are to become in any way optimistic that this policy will work, it will only come at the cost of growing concern over the long-term inflationary implications of the policy," he said. "As such, in conjunction with ongoing frailty in the banking sector and an ongoing economic downturn of unknown proportions, an era of quantitative easing is one more thing for investors to worry about," he added. Markets are keenly awaiting the upcoming press conference from Trichet and what he says about the prospect for further interest rate reductions and quantitative easing, the technical term for increasing the supply of money in the economy.

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