European Central Bank cuts rates deeper into negative territory, relaunches asset-purchase program

Galtero Lara
Setiembre 12, 2019

With inflation falling, Germany skirting a recession and a global trade war sapping domestic confidence, the European Central Bank had all but promised more support to the economy and the only question was how extensive stimulus would be.

The letter, addressed directly to ECB President Mario Draghi as the bank's governing council gathers for a policy meeting, ignores the convention that central banks should be free of political pressures.

They said in a statement that they will cut the bank's deposit rate to minus 0.5 percent from minus 0.4 percent. Negative interest rates are meant to encourage banks to lend to consumers and businesses, rather than park their money with the ECB.

Factory output has slumped in response to diminishing worldwide trade volumes as Washington and Beijing impose punitive tariffs on each other's goods, while business investment has fallen against the uncertain political backdrop.

In response to Trump's allegation that the European Central Bank is deliberately "depreciating the euro", Draghi insisted that exchange rates was not a target of monetary policy.

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The ECB also said it was re-starting quantitative easing.

"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, 2per cent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics", the European Central Bank said.

Eurozone inflation remains well below its 2% target.

President Donald Trump reacted quickly to the bank's move in a dig at the US Federal Reserve.

Draghi and the ECB's decision come at a time when Europe's economy has seen growing instability. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting US exports. "They get paid to borrow money, while we are paying interest!"

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