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ECB reveals surprise stimulus moves ECB reveals surprise stimulus moves
(35 minutes later)
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 European Central Bank has cut its main interest rate to 0% from 0.05% as part of a package of measures intended to revive the eurozone economy.
The ECB will also expand its quantitative easing programme from €60bn to €80bn a month.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 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. The bank has also decided to cut the bank deposit rate further, from minus 0.3% to minus 0.4%.
It now stands at minus 0.4%, down from minus 0.3%, meaning that banks must pay more to deposit funds with the ECB. That means banks must pay more to deposit funds with the ECB and is intended to encourage them to lend more rather than hoard cash.
The package of measures, including the decision to cut the benchmark interest rate, was more radical than investors had expected.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. It followed a stimulus package announced in December that has largely failed to drive economic growth higher or boost inflation.
Bigger bazooka Consumer prices fell by 0.2% in February after a revised 0.3% rise in January, forcing the ECB to take action. The bank aims to ensure the annual inflation rate stands at about 2%.
The euro fell 1% against the US dollar to $1.0863 and shed 0.5% against sterling, the yen and the Swiss franc. ECB president Mario Draghi told a news conference in Frankfurt that the governing council expected the key interest rates "to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases".
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." The bond-buying programme will continue at least until the end of March 2017, with the new corporate bond purchase scheme starting towards the end of the second quarter this year.
A weaker euro makes European exports cheaper and the fall bolstered European stock markets, with Frankfurt rising 2.2% and Paris jumping 2.5%. He said that eurozone inflation projections had been lowered to reflect the recent decline in oil prices, with the bank expecting a rate of 0.1% this year, 1.3% next year and 1.6% in 2018.
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%. "The risks to the euro-area growth outlook remain tilted to the downside," Mr Draghi warned.
ECB president Mario Draghi will give a press conference in Frankfurt at 1330 GMT. The bank now expected eurozone GDP to increase by 1.4% in 2016, 1.7% next year and 1.8% in 2018.
Analysis: Kamal Ahmed, economics editorAnalysis: Kamal Ahmed, economics editor
Mario Draghi will be now be watching to see if the ECB's actions have any effect on economic growth.Mario Draghi will be now be watching to see if the ECB's actions have any effect on economic growth.
If they don't, the central bank has a major problem. As do the major European economies, held in a deflationary spiral by slowing growth, low global demand and crumbling commodity prices.If they don't, the central bank has a major problem. As do the major European economies, held in a deflationary spiral by slowing growth, low global demand and crumbling commodity prices.
Once you have fired the bazooka, you had better hope it has the desired effect.Once you have fired the bazooka, you had better hope it has the desired effect.
Read more from Kamal here. Read more from Kamal here
Bigger bazooka
The euro initially fell 1% against the US dollar, but soon recovered somewhat to be down just 0.3% at $1.0970.
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 1.7% and Paris jumping 2%.
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%.