The European Central Bank has cut its key interest rate by a quarter percentage point to 1% to help the euro zone economy as it slides toward recession because of the debt crisis.
The bank last cut rates only five weeks ago on November 3. At a press conference this afternoon, Mr Draghi said the bank had lowered its economic growth forecast for next year.
He also told reporters that the decision to cut rates had not been unanimous, and that there had been a "lively" discussion on the issue, in particular the timing of the rate cut.
The ECB president Mario Draghi also announced a number of new measures to help European banks to access funding. He told reporters this afternoon that the measures were aimed at supporting the flow of credit to businesses and households
He said banks would now be allowed borrow as much ultra-cheap money as they want from the ECB for up to 36 months, with a repayment option after one year. Banks can also use lower-rated assets as collateral, including mortgages and bank loans.
The bank will also ease the rules under which national central banks can provide funding to commercial banks. The ECB is also lowering banks' reserve ratio from 2% to 1%, which will allow banks to increase the amount they can lend.
Mr Draghi also said the bank had lowered its forecast for euro zone growth next year to 0.3%, due to weakening confidence and financial market tensions caused by high levels of uncertainty. This meant, he said, that inflationary pressures would remain moderate in the coming months.
He repeated that a new "fiscal compact" from euro zone governments, ensuring that they moved towards balanced budgets, was essential. He called on European governments to "do their utmost" to restore the confidence of markets in the eurozone.
"Governments must do their utmost" in terms of pushing through the necessary financial and structural reforms, he stated.
Today's quarter-point rate cut will see the average tracker mortgage fall by about €700 a year. For every quarter of a point the bank lowers rates, the monthly cost of a €100,000 mortgage falls by about €15.
Banks have to pass the cuts on to tracker mortgage holders, but those on standard variable rate mortgages will have to wait and see if their lenders pass the cut on.
Draghi dampens ECB bond expectations
The head of the European Central Bank also told today's news conference that there is no deal with euro zone governments for the bank to step up government bond purchases in return for political leaders reaching a deal on tougher rules to prevent governments piling up debt.
Draghi said he was "surprised" at market interpretation of remarks he made last week, in which he said "other elements" could follow an agreement on a new eurozone debt pact.
Markets took the remarks to mean the bond purchases would increase if leaders agree on a pact at a summit starting tonight. Bond purchases would lower borrowing costs for indebted governments. But the ECB has said it is up to governments to fix their finances.
The yield on 10-year Italian bonds rose to 6.92% this evening after Mr Draghi's comments.
