ECB CUTS RATES
Mike Bird, Business Insider, AP Photo/Jens Meyer, REUTERS/Ints KalninsRocket launcher, or peashooter?
The European Central Bank cut all of its main rates and said it would buy corporate bonds in its asset purchase program.Here's what you need to know:
- The refinancing rate will be decreased by 5 basis points to 0.00%.
- The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25%.
- The interest rate on the deposit facility will be decreased by 10 basis points to -0.40%.
- The monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April.
- Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases.
- A new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years, will be launched, starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.
So the bazooka has been well and truly fired.
In a move widely expected across the financial markets, the bank has decided to go even lower below zero, a strategy designed to boost inflation and encourage spending across Europe.
Following the decision, ECB President Mario Draghi will step up to take questions from the press - that could be pretty crucial.
While the deposit rate cut itself doesn't come as a surprise, the other measures are more extreme than expected.
Markets in Europe and across the world will be waiting with bated breath to hear what Draghi says when he answers questions from journalists.
Draghi will likely address why the bank's decided to cut rates at the press conference, as well as why it has extended its QE programme. The ECB says that Draghi "will comment on the considerations underlying these decisions."
It's also thought that Draghi might address the threat of low inflation within the Eurozone at the press conference.
After the ECB's January meeting, Draghi pretty much telegraphed a cut in the base deposit rate at today's meeting, saying in his press conference: "It will be necessary to review and possibly reconsider our monetary policy stance at our next meeting in early March." He made the comment three times throughout the press conference.
Some have questioned Draghi's wisdom in cutting rates even further. Prior to the announcement, CEO of Austrian bank Erste Bank, Andreas Treichl, told the Financial Times that "savers are risk adverse and capital markets are not very prominent" in his region, meaning "lowering interest rates is not very helpful in stimulating economic growth," he said.