Business
European Central Bank president mario Draghi announced rate cuts, but suggested no more are coming.
Reuters reports:
European Central Bank chief Mario Draghi unleashed a bold easing package on Thursday, cutting rates and expanding asset buys, but undid the very stimulus he hoped to achieve by suggesting there would be no further cuts. That comment drove the euro to unwanted gains against the dollar and prompted criticism from some that Draghi, who already in December disappointed markets by under-delivering, had once again botched his communication. Seeking to resurrect corporate activity and investments, the ECB said it would start buying corporate debt and even offered to pay banks for lending to companies in the ailing euro area in a bid to kickstart growth and stave off the threat of deflation. The Bank has sought for three years to push inflation up to its target level, spending 700 billion euros on asset buys in the past year alone. But it has been to no avail amid weak investment, high unemployment, high debt and productive slack in the economy. Draghi announced that ECB staff had slashed its inflation and growth expectations, predicting that even with fresh stimulus, price growth will not reach its target for years to come and growth will slow.
The New York Times writes:
“We have shown that we are not short of ammunition,” Mr. Draghi said. In normal times, commercial banks earn interest on money parked at the central bank. But beginning in June 2014, the European Central Bank began effectively penalizing banks for doing so, charging a negative interest rate on deposits. In its first step on Thursday, the European Central Bank said it would further cut the deposit rate — the interest on commercial bank’s holdings at the central bank — to minus 0.4 percent. That was down from minus 0.3 percent. Some analysts had expected a bigger cut, to minus 0.5 percent. The moves signal the central bank’s sense of urgency about the eurozone economy. Mr. Draghi said on Thursday that the central bank’s outlook for economic growth had been revised “slightly down” because of the slowing global economy and “broader geopolitical risks.”
The Wall Street Journal notes:
The negative reaction of markets follows a similar response in December, when investors quickly concluded the ECB’s new steps were insufficient, given the heightened expectations for more aggressive action. A stronger euro could hinder growth and lower consumer prices, while lower share prices could raise the cost of borrowing for companies, making it more costly for them to invest. Both those effects would weaken the ECB’s stimulus effort. Mr. Draghi said the new measures were needed to counter a weakening in the outlook for the global economy and volatility in financial markets since the start of the year that together heightened the risk that a recent fall in consumer prices would become “entrenched.”
