Date
20 September 2017
ECB president Mario Draghi says stagnant growth and weakening inflation pushed the central bank to cut interest rates. Photo: Bloomberg
ECB president Mario Draghi says stagnant growth and weakening inflation pushed the central bank to cut interest rates. Photo: Bloomberg

ECB cuts rates, unveils new stimulus plans

The European Central Bank has cut interest rates and unveiled new stimulus plans to boost the eurozone’s weak economy.

The euro fell more than 1 percent against the US dollar to a 14-month low while European equity and bond prices rose after the announcement on Thursday, the Wall Street Journal reported.

ECB president Mario Draghi said stagnant growth and weakening inflation compelled the central bank to make the moves.

“In August, we see a worsening of the medium-term inflation outlook, a downward movement in all indicators of inflation expectations,” Draghi told a news conference. “Most, if not all, the data we got in August on GDP and inflation showed that the recovery was losing momentum.”

The ECB lowered its main lending rate by 0.10 percentage point to 0.05 percent. It cut a separate rate on bank deposits deeper into negative territory, to -0.2 percent from -0.1 percent.

The central bank also announced it will purchase covered bank bonds and bundled loans known as asset-backed securities and said additional details will be released in October.

Draghi did not elaborate on the size of the program, but said the aim was to get the ECB’s balance sheet, currently around 2 trillion euros (US$2.58 trillion), back to its size at the beginning of 2012, when it was 2.7 trillion euros, according to the newspaper.

He appeared to endorse the euro’s recent slide, noting “significant and increasing differences in the monetary policy cycles of major economies”, the report said. A weaker euro boosts exports and spurs inflation.

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CG

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