The European Central Bank has cut its benchmark interest rate to 0% from 0.05% as part of a package of measures intended to boost the flagging eurozone economy.
The ECB will also expand its quantitative easing programme from €60bn to €80bn a month.
The scheme will now include the purchase of corporate bonds as well as government debt.
The bank has also decided to further cut the bank deposit rate.
It now stands at minus 0.4%, down from minus 0.3%, meaning that banks must pay more to deposit funds with the ECB.
The package of measures, including the decision to cut the benchmark interest rate, was more radical than investors had expected.
Thursday’s action followed a stimulus package announced in December.
Bigger bazooka
The euro fell 1% against the US dollar to $1.0863 and shed 0.5% against sterling, the yen and the Swiss franc.
John Hardy, head of currency strategy at Saxo Bank, said: “This was a much bigger bazooka than the market was expecting and shows the ECB trying to get ahead of the confidence curve after learning its lesson in December.”
A weaker euro makes European exports cheaper and the fall bolstered European stock markets, with Frankfurt rising 2.2% and Paris jumping 2.5%.
Shares in European banks also rose sharply, with Deutsche Bank rising 4.5%, Societe Generale adding 5.3%, Santander up 4.4% and Italy’s UniCredit adding 6.8%.
ECB president Mario Draghi will give a press conference in Frankfurt at 1330 GMT.
