ECB surprise rate cut boosts markets as Ibex 35 breaks 10,000-point barrier

The Spanish stock market and the rest of the European bourses jumped on Thursday after the European Central Bank (ECB) surprised investors by cutting its key lending rate from 0.50 percent to a euro-era record low of 0.25 percent, but the rise proved short-lived.

The Spanish blue-chip Ibex 35 closed down 0.98 percent at 9,740.40 points after initial gains of well over 1 percent after the ECB announcement, which pushed the benchmark index to an intraday high of 10,025.90 points. In France the CAC 40 fell 0.14 percent also after earlier gains. The exception was the DAX in Frankfurt, which closed up 0.44 percent. The fall in the euro of close to 1 percent to 1.33 against the dollar favors the export-driven German economy.

Market observers said low inflation paved the way for the cut at a time when growth in the euro zone remains weak. “There comes a point where inflation is so weak, and coming in weaker than anticipated, that the case for loosening policy becomes too hard to resist,” Bloomberg quoted Richard Barwell, senior European economist at Royal Bank of Scotland in London, as saying.

Rather than inflation, the main risk at the moment, particularly in peripheral southern euro-area countries such as Spain is one of deflation.

ECB President Mario Draghi predicted the recovery in the euro zone would continue at a slow pace.