The European Central Bank changed tack on its tightening plan on Thursday, pushing out the timing of its first post-crisis rate hike until 2020 at the earliest and offering banks a new round of cheap loans to help revive the euro zone economy.
The bolder-than-expected move came as the U.S. Federal Reserve and other central banks around the world are also holding back on rate hikes. It underlined how a global trade war, Brexit uncertainty and simmering debt concerns in Italy are taking their toll on economic growth across Europe.
Whereas the bank had previously said rates would remain at their record low levels through the summer, it said it now expected them to stay there “at least through the end of 2019”.
The ECB now sees euro zone growth at barely 1.1 percent this year, compared to the 1.7 percent it projected in December.
In addition, it launched a third Targeted Long-Term Refinancing Operation (TLTRO III) consisting of two-year loans partly aimed at helping banks roll over 720 billion euros in existing TLTROs and so avoiding a credit squeeze that could exacerbate the economic slowdown.
Commercial banks have already started restricting credit in the face of falling industrial output and exports.
As reported by Reuters, the new loans will carry a floating rate tied to the ECB’s main refinancing operation, currently set at zero.