Date
18 October 2017
ECB chief Mario Draghi addresses a news conference at the central bank’s headquarters in Frankfurt on Thursday. Photo: Reuters
ECB chief Mario Draghi addresses a news conference at the central bank’s headquarters in Frankfurt on Thursday. Photo: Reuters

ECB extends stimulus but fails to meet market expectations

The European Central Bank (ECB) eased policy further on Thursday to boost the region’s economy and fight low inflation, but the action fell short of expectations, prompting a selloff on global stock markets.

The ECB pushed its deposit rate deeper into negative territory as it cut the rate to minus 0.3 percent from minus 0.2 percent, effectively charging banks more to store excess reserves.

The central bank also extended the duration of its bond-buying program by six months. 

The ECB will start buying municipal debt but keep its overall asset purchases unchanged, potentially lowering its government bond buys as the new instrument crowds out other assets, Reuters noted.

Investors were disappointed with the measures as they had been expecting more aggressive action. 

Markets had anticipated a 25 percent increase in monthly asset purchases and a stronger cut in the deposit rate.

Following the announcement, stock markets in Europe and US took a battering, while the euro jumped as much as 3.1 percent against the dollar and bond yields surged.

The Stoxx Europe 600 index ended 3.1 percent lower on Thursday, its biggest one-day fall since Aug. 24. Meanwhile, government bond prices also fell sharply. 

On Wall Street, the Dow Jones industrial average slumped 1.42 percent to 17,477.67 points, while the S&P 500 index shed 1.44 percent — its biggest one-day fall since Sept. 28 — to 2,049.62.

ECB President Mario Draghi defended the bank’s moves, saying the markets will take time to understand the latest measures. 

“I think these measures need time to be fully appreciated and we’ll see,” he told a news conference. “Our asset purchase program is flexible, it can always be adjusted.” 

“There is confidence, but no complacency.”

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CG/RC

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