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ECB cuts eurozone rates and launches stimulus programme | ECB cuts eurozone rates and launches stimulus programme |
(35 minutes later) | |
The European Central Bank has cut its benchmark interest rate to 0.05%, and introduced new stimulus measures. | The European Central Bank has cut its benchmark interest rate to 0.05%, and introduced new stimulus measures. |
The ECB had earlier cut its rate from 0.25% to 0.15% in June, and also became the first major central bank to introduce negative interest rates. | The ECB had earlier cut its rate from 0.25% to 0.15% in June, and also became the first major central bank to introduce negative interest rates. |
It will also launch an asset purchase programme, which will buy debt products from banks. | |
It is hoped this move will add liquidity to the financial system and revive lending. | |
The move falls short of a programme of buying government bonds - a process known as quantitative easing, and one which the US Federal Reserve has undertaken. | |
'New credit flows' | |
Referring to the ABS purchases, Mr Draghi said: "The Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities with underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase programme. | |
"This reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter." | |
After the latest news was announced the euro fell to a one-year low against the dollar of $1.3011. | After the latest news was announced the euro fell to a one-year low against the dollar of $1.3011. |
The ECB has been under pressure to kick-start the eurozone economy, as manufacturing output has slowed and inflation has fallen to just 0.3%. | The ECB has been under pressure to kick-start the eurozone economy, as manufacturing output has slowed and inflation has fallen to just 0.3%. |
Mr Draghi had said after the ECB's last rate cut in June that "for all the practical purposes, we have reached the lower bound". | Mr Draghi had said after the ECB's last rate cut in June that "for all the practical purposes, we have reached the lower bound". |
The benchmark refinancing rate determines what banks pay the ECB for credit, and affects what banks charge companies to borrow. | The benchmark refinancing rate determines what banks pay the ECB for credit, and affects what banks charge companies to borrow. |
The central bank also cut its deposit rate, what banks pay to keep their money at the central bank, to minus 0.2% from minus 0.1%. | The central bank also cut its deposit rate, what banks pay to keep their money at the central bank, to minus 0.2% from minus 0.1%. |
It is hoped that this measure will encourage banks to lend to business, rather than sit on their cash. | It is hoped that this measure will encourage banks to lend to business, rather than sit on their cash. |
"The cut to the deposit rate is significant and should further weaken the euro," said Aberdeen Asset Management Investment Manager Luke Bartholomew. | |