The European Central Bank has expanded quantitative easing
The European Central Bank has unleashed a bigger-than-expected package of measures to stimulatethe eurozone economy, with expanded quantitative easing, incentives to banks to increaselending and further interest rate cuts.
The ECB cut its deposit rate by 10 basis points yesterday to minus 0.4 per cent but eased theimpact on banks with cheaper short-term loans and longer-term liquidity at negative interestrates — essentially paying eurozone lenders to increase credit to households and companies.
Mario Draghi, ECB president, said interest rates would stay low for “an extended period” andhe kept open the option of a further cut. But he added his voice to growing unease aboutnegative rates among top central bankers, saying he did not anticipate pushing deeper intonegative territory, partly because of the impact on banks.
“Does it mean we can go as low as we want without having any consequences on the bankingsystem? The answer is no,” the ECB president said.
His comments on rates triggered a surge in the euro to $1.12, a near 2 per cent rise on theday, after it earlier plunged on the news of the ECB’s measures.
Analysts interpreted the measures as a recalibration of the ECB’s armoury, putting moreammunition into reinforcing the eurozone’s economy and less into weakening the currency.
The ECB raised the amount of bonds the eurozone’s central bankers buy each month under QEfrom 60bn to 80bn — a greater amount than many analysts had expected. It also expanded therange of assets it will buy to include high quality corporate bonds.