Spain’s risk premium on Thursday was steady at a level last seen close to two years ago after the European Central Bank confirmed market expectations by cutting its key intervention rate by 25 basis points to a record low of 0.50 percent. As the euro zone slips into recession, the measure is aimed at helping keep inflation in check.
The spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent dropped below 290 basis points prior to the announcement at levels last seen in August 2011. At 3.20pm, it was flat at 293 basis points, compared with Wednesday’s closing level.
“Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term,” ECB President Mario Draghi said in a statement after announcing the rate cut.
“At the same time, weak economic sentiment has extended into spring of this year. The cut in interest rates should contribute to support prospects for a recovery later in the year,” Draghi said.
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