ECB Cuts Rates, Launches Sweeping Stimulus Package; Trump Reacts

Murat Uysal

Murat Uysal delivering rate cuts CBRT

In addition, the ECB will introduce tiering, a mechanism created to partially exempt banks from paying interest on excess cash deposited with the central bank. In fact, with an interest rate of -0.5%, the Euro will continue to struggle against most currencies although it is possible that perhaps some of the selling will update right around this big figure and cause a bit of a bounce.

The bank had widely signalled that it was planning to cut rates as part of a package of stimulus measures. It will buy €20bn of debt a month from 1 November.

"Crucially, there may be much less scope this time for the euro to edge lower and thus boost inflation expectations". The ECB changed its guidance on interest rates to say they'll stay at present or lower levels until the outlook for inflation "robustly" converges to its goal of just below 2%.

"Today's decisions have anchored and enshrined the Draghi legacy in future European Central Bank decisions", ING economist Carsten Brzeski said. The QE program was paused in December after buying €2.6 trillion of bonds.

The theory goes that different levels of interest rates will help banks protect profits and enhance their ability to lend while allowing the ECB to pull rates even lower into negative territory if needed.

The central bank revealed plans to cut the rate on deposits it takes from banks to minus 0.5% from minus 0.4%. European exports and manufacturing production have slowed in recent months and export-reliant Germany, the euro area's largest economy, is teetering on the brink of a recession, a development that would reverberate around the region.

European Central Bank cuts rates by 10bps, in-line with market expectations, announces new QE program.

The governing council of the bank said that it had tasked committees with examining policy options, including the re-starting of the asset-purchasing programme.

'But let's face it, neither of them truly think [exchange rates are the target] and this is more of a case of a central banker being drawn into a political argument that he'd rather steer clear of, ' said Craig Erlam from Oanda.

"In the world of ECB-watching, such a sequence of signals is as close as it gets to a pre-commitment to action", said Claus Vistesen, the chief eurozone economist at Pantheon Macroeconomics, in a note.

Draghi, who steps down at the end of October, will be succeeded by the former managing director of the International Monetary Fund Christine Lagarde.

Lagarde has been broadly supportive of Draghi's monetary policy path.

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