ECB Cuts Rates, Launches Sweeping Stimulus Package; Trump Reacts

13 Septembre, 2019, 04:37 | Auteur: Yves Courtet
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The euro stood at $1.10615, having risen 0.5 percent on Thursday and staying near two-week high of $1.10875 hit in US trade.

The ECB cut its deposit rate by 10 basis points to a record low of -0.5 per cent, promised that rates would stay low for longer and said it would restart bond purchases at a rate of €20-billion a month from November 1.

The council also agreed to renew its bond buying program, signaling it will commence 20 billion euros a month in asset purchases, starting from November 1, 2019 and continuing indefinitely. The market had been expecting an end date on the QE program so today's open-ended announcement helped push the single currency sharply lower. Markets do not expect rates to rise for almost a decade.

European Central Bank President Mario Draghi listens at a news conference during an informal meeting of Ministers for Economic and Financial Affairs in Riga, Latvia, April 24, 2015.

The central bank also extended a promise to keep rates at record lows for as long as necessary.

"The Governing Council now expects the key European Central Bank interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics", the European Central Bank said in its statement. But the euro later swapped the slump for a 0.4 per cent gain.

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The Australian dollar, meanwhile, was steady at 68.6 U.S. cents. Yields on euro zone government bonds fell sharply.

Attention now turns to Draghi's 1230 GMT news conference at which he will also reveal the bank's new economic projections.

US President Donald Trump tweeted saying "The ECB is trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting US exports".

All these measures are supposed to stimulate inflation, which is far from the European Central Bank target of close but below 2%, and ultimately - support growth, which is now set to slow down to just 1.1% this year and 1.2% next year.

Not easing in sync with the Fed risked pushing the euro higher, which would then dampen inflation and put the bank even further away from its targets. Inflation has begun to fall, the continent is feeling the effects of the trade war between China and the US, and Germany, Europe's largest economy, has been teetering on recession.

Draghi and the ECB's decision come at a time when Europe's economy has seen growing instability.

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