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ECB reveals surprise stimulus moves ECB reveals surprise stimulus moves
(35 minutes later)
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 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 cut the bank deposit rate further, from minus 0.3% to minus 0.4%.The bank has also decided to cut the bank deposit rate further, from minus 0.3% to minus 0.4%.
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.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.
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%. 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."
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". The stimulus measures announced three months ago have largely failed to drive economic growth higher or boost inflation.
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. Consumer prices fell by 0.2% in February after a revised 0.3% rise in January. The bank aims to ensure the annual inflation rate stands at about 2%.
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. ECB president Mario Draghi told a news conference in Frankfurt that eurozone inflation projections had been lowered to reflect the recent decline in oil prices. The bank now expected a rate of 0.1% this year, 1.3% next year and 1.6% in 2018.
"The risks to the euro-area growth outlook remain tilted to the downside," Mr Draghi warned. "The risks to the euro-area growth outlook remain tilted to the downside," he warned.
The bank now expected eurozone GDP to increase by 1.4% in 2016, 1.7% next year and 1.8% in 2018.The bank now expected eurozone GDP to increase by 1.4% in 2016, 1.7% next year and 1.8% in 2018.
The governing council expected the bank's 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".
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.
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 hereRead more from Kamal here
Bigger bazooka The euro initially fell 1% against the US dollar, but soon recovered to be trading higher on the day at $1.1023. A weaker euro makes European exports cheaper, so the rise will not be welcomed by manufacturers.
The euro initially fell 1% against the US dollar, but soon recovered somewhat to be down just 0.3% at $1.0970. European stock markets also rose sharply following the announcement before losing some of those gains, with Frankfurt up 1% and Paris rising 1.3%, although the FTSE 100 in London fell 0.4%.
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." Shares in European banks posted gains, with Deutsche Bank rising 4.8%, Societe Generale adding 2.7%, Santander up 5.5% and Italy's UniCredit adding 6.8%.
A weaker euro makes European exports cheaper and the fall bolstered European stock markets, with Frankfurt rising 1.7% and Paris jumping 2%. Laith Khalaf, senior analyst at Hargreaves Lansdown, said the ECB was now "plumbing the depths of monetary policy in a bid to stave off the encroaching threat of sustained deflation in Europe".
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%. "It's hard to see even lower rates and more QE in Europe as a positive development. The fact the ECB is still pursuing such extreme monetary policy paints a depressing picture of the European economy, and markets are beginning to question what central banks have left in the locker if the global economy slips back towards recession," he said.