JAKARTA (TheInsiderStories) - The European Central Bank (ECB) cut its main interest rate from 0.05 percent to 0.00 percent and cut its bank deposit rate, from minus 0.3 percent to minus 0.4 percent. The central bank will also expand its quantitative easing programme from €60 billion to €80 billion a month.
European stock markets have fallen and the euro has soared following the economic stimulus measures announced by the ECB. The Euro initially fell 1.6 percent against the US dollar to $1.0822 before jumping as high as $1.1218. It was one of the biggest one-day swings in the currency’s history.
In his speech, Chairman of ECB Mario Draghi explained, that the bank had cut eurozone inflation projections to reflect the recent decline in oil prices. The bank now expected inflation to be just 0.1 percent this year, will rise to 1.3 percent in 2017 and 1.6 percent in the following year.
He added, the bond-buying programme will continue at least until the end of March 2017. As well as government debt, the bank will now be allowed to use its newly printed money to buy bonds issued by companies as well. That scheme will start towards the end of the second quarter this year.
At Thursday’s meeting the Governing Council of the ECB took the following monetary policy decisions:
(1) The interest rate on the main refinancing operations of the Eurosystem will be decreased by 5 basis points to 0.00 percent, starting from the operation to be settled on 16 March 2016.
(2) The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25 percent, with effect from 16 March 2016.
(3) The interest rate on the deposit facility will be decreased by 10 basis points to -0.40 percent, with effect from 16 March 2016.
(4) The monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April.
(5) 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.
(6) 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.