MercoPress. South Atlantic News Agency

ECB cuts rate to 0% and announces new stimulus, but market reactions are mixed

ECB cut its main interest rate from 0.05% to 0% and its bank deposit rate, from minus 0.3% to minus 0.4%. The bank will also expand quantitative easing program

European stock markets have fallen and the Euro has soared following the economic stimulus measures announced by the European Central Bank on Thursday. After initially rising following the broader than expected package, Frankfurt closed down 2.3%, Paris ended 1.7% lower and the FTSE 100 slid 1.8%.

 The Euro initially fell 1.6% 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. Sharp rises for European banks were also largely wiped out.

The ECB cut its main interest rate from 0.05% to 0% and cut its bank deposit rate, from minus 0.3% to minus 0.4%. The bank will also expand its quantitative easing program from €60bn to €80bn a month.

ECB president Mario Draghi told a news conference in Frankfurt that the bank had cut Euro zone inflation projections to reflect the recent decline in oil prices.

The bank now expected inflation to be just 0.1% this year - substantially lower than the previous estimate of 1% and underlining the need for the ECB to go further than expected.

Inflation should rise to 1.3% in 2017 and 1.6% the following year, according to its estimates. “We are not in deflation,” Draghi stressed. He also warned that risks to economic growth across the 19 countries that use the euro remained “tilted to the downside

The ECB cut its growth forecasts to an increase of 1.4% this year - down from 1.7%; 1.7% for 2017 - down from 1.9%; and 1.8% for 2018.

The governing council expected the bank's key interest rates ”to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases“.

”Rates will stay low, very low, for a long period of time and well past the horizon of our purchases,“ Draghi said, referring to the bank's asset purchase program, due to end in March 2017. But ”from today's perspective and taking into account the support of our measures to growth and inflation, we don't anticipate that it will be necessary to reduce rates further.“

The bond-buying program 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.

The market for the European investment-grade corporate bond market is worth about €800bn, according to UBS analysts.

”The devil is in the detail of what will be included in the corporate bond purchases, and right now that presents more questions than answers,” one analyst said.

Gold rose as the Euro bounced. U.S. gold futures GCv1 for April delivery settled up 1.2% at $1,272.80 an ounce. However oil prices declined, with U.S. crude easing from three-month highs as refinery maintenance looked set to boost record domestic crude stockpiles.