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ECB cuts eurozone interest rate to zero to jump-start economy | |
(35 minutes later) | |
The European Central Bank has cut interest rates in the eurozone to zero, expanded its money printing programme and reduced a key deposit rate further into negative territory as it seeks to revive the region’s economy and fend off deflation. | The European Central Bank has cut interest rates in the eurozone to zero, expanded its money printing programme and reduced a key deposit rate further into negative territory as it seeks to revive the region’s economy and fend off deflation. |
Going further than economists had expected, the ECB cut the eurozone’s main “refinancing” rate from 0.05% to zero, prompting a sharp drop in the euro against the pound and the dollar. | |
The central bank also cut its two other interest rates as part of a package of measures to revive lending and economic activity in the eurozone. The deposit rate was cut as expected by 10 basis points to -0.4%, the ECB said in a statement. | |
The latest cut in the deposit rate means the ECB will be charging banks more to hold their money overnight, with the aim of encouraging them to lend it to businesses. The marginal lending rate, paid by banks to borrow from the ECB overnight, was cut from 0.3% to to 0.25%. | |
The ECB also expanded its quantitative easing programme to €80bn (£61bn) a month, up from €60bn. That was more than the €70bn economists had been expecting, according to the consensus in a Reuters poll of economists. | |
Monetary policy decisions https://t.co/eZRPXZcJCy | |
ECB chief, Mario Draghi, had already indicated the central bank would announce fresh stimulus at the conclusion of this week’s policy-setting meeting. Economists had widely expected the ECB to expand its quantitative easing programme – whereby it pumps money into the economy by buying up assets from financial institutions – and to cut the deposit rate. | |
The cut to the main refinancing rate and to the marginal lending rate caught markets off-guard and the euro weakened sharply after the decision was announced, fell about 1% against both the dollar and the pound. | |
Big move lower in euro following the ECB announcement, but last week's low 1.0825 in EURUSD holds for now: pic.twitter.com/vyclH9vKJx | |
The Frankfurt-based ECB had come under growing pressure to increase support for the eurozone’s flagging economy after the single currency bloc slipped back into negative inflation in February. | |
But the latest moves come amid growing scepticism on financial markets that central banks have enough ammunition left to bolster growth and stop falling prices becoming entrenched. | |
Commenting on the announcement, Carsten Brzeski, an economist at the bank ING, said: “The ECB just lifted at least parts of a white rabbit out of the hat ... It will be interesting to see how Draghi will address recent criticism on the effects of the ECB’s monetary policy and whether he can give the markets the feeling that the ECB indeed is almighty and powerful and not impotent.” |