The European Central Bank cut interest rates further below zero and said it’ll resume bond purchases as President Mario Draghi overcame critics of his stimulus policies to make a final run at reflating the euro-area economy.
The Governing Council reduced the deposit rate to minus 0.5% from minus 0.4%, and will buy debt at 20 billion euros ($22 billion) a month starting Nov. 1. Banks will get exemptions from the negative rate for some of their deposits after an outcry from lenders about the squeeze on profitability. Draghi will hold a press conference at 2:30 p.m. in Frankfurt.
The ECB’s measures also included new rate guidance and new terms for long-term loans. On the latter, it scrapped a 10-basis point rate premium it previously announced.
On guidance, it now expects interest rates to remain at their present or lower levels until it has seen the inflation outlook “robustly converge” to its goal, and it said such convergence must be “consistently reflected in underlying inflation dynamics.” It previously expected rates to stay unchanged until mid-2020.
The announcement of a new stimulus package is a remarkable turn of events, just nine months after the ECB signaled it was done with ever-looser policy. Now inflation is running at barely half the goal of just under 2%, and the manufacturing sector is in a contraction that risks spreading to the rest of the economy.
Source : Bloomberg