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ECB slashes rates to its lowest and introduces quantitative easing to stimulate the European economy

Saturday, September 14th 2019 - 21:56 UTC
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ECB said in Frankfurt it would cut its deposit rate by 10 basis points, to -0.5% from -0.4%, and purchase 20bn Euros' of bonds a month starting in November. ECB said in Frankfurt it would cut its deposit rate by 10 basis points, to -0.5% from -0.4%, and purchase 20bn Euros' of bonds a month starting in November.

The European Central Bank announced a sweeping round of stimulus for the continent's slowing economy, cutting interest rates to their lowest ever level and introducing a round of quantitative easing.

The bank said in a conference in Frankfurt, Germany, that it would cut its deposit rate by 10 basis points, to -0.5% from -0.4%, and purchase 20 billion Euros' worth of bonds a month starting in November.

The move marks the first time the deposit rate has changed since 2016, as Europe's economy has struggled amid losses in demand both from Brexit and the trade war. Quantitative easing was most recently used in December.

The ECB also plans to introduce a tiered system to exclude some of the banks that would be suffering from negative rates — something that has been done in Japan and Denmark already.

On its website, the ECB said the key interest rates would remain at current levels until inflation hit 2%.

“Taken as a whole the ECB has delivered a package of measures which is more than most expected today,” Andrew Kenningham, the chief Europe economist at Capital Economics, told Markets Insider in an email.

“Admittedly, the 10 basis point cut to the deposit rate was the least that it could have done and the monthly pace of asset purchases, at €20 billion beginning on 1st November, was a bit smaller than expected.

”But the key point is that this commitment to more QE is open-ended: it will end shortly before the bank begins raising interest rates.”

The ECB follows the Federal Reserve and other global central banks in cutting rates to help stimulate the global economy. The Federal Reserve is also expected to lower rates later this month.

Mario Draghi, the head of the ECB, will be stepping down from the role this fall and is to be replaced by Christine Lagarde, the head of the International Monetary Fund.

Categories: Economy, International.

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