European Central Bank President
Mario Draghi on Thursday used the whole arsenal at his disposal,
cutting interest rates to new lows in a surprise move and
expanding the ECB's quantitative easing (QE) programme of
massive bond-buying to bolster the eurozone's economy.
In an initial response the Milan bourse soared as financial
markets first celebrated the bold new moves by the central
banker, only to close down on disappointment at lowered growth
and inflation forecasts.
The Milan bourse's blue-chip FTSE-MIB index jumped 4% but
then fell back to show a 0.50% loss at the close, while there
were bigger losses across Europe.
London closed 1.78% down, Frankfurt 2.31% off and Paris
1.70% down.
Dipping into his arsenal, Draghi cut the ECB's main
refinancing rate to a historic low of 0% while boosting the QE
programme with another of his patented 'bazookas' to launch the
so-called QE3.
The ECB also cut its deposit facility rate from -0.30% to
-0,40%.
The rate on marginal loans dropped to 0.25%.
The new package of six monetary stimulus measures aims "to
further ease financial conditions, stimulate credit, and
strengthen" the recovery, Draghi said.
The ECB approved a new package of four Targeted Longer-Term
Refinancing Operations (TLTROs) to banks at the new lowered rate
for deposits of -0.40%.
In the new package of four TLTROs, Draghi said, the more
banks lend the lower the rate will be, starting from the zero of
the main refinancing rate.
Asked if the ECB's new package of four TLTRO loans was
aimed at helping Italian banks, Draghi said that "when we
discuss these issues we do so not with a single country in mind,
but the whole eurozone".
The ECB raised the purchase limit of each individual bond
issue in its QE programme from 35% to 50%, he added.
The ECB expects rates to remain at their current record
lows "for a long time, well beyond the time frame of the (QE)
purchases" being made, Draghi said in a clear message - expected
by markets - on the forward guidance of interest rates.
The measures adopted by the ECB were approved by an
"overwhelming majority" that dispels doubts on central banks'
capacity to act, and of the ECB in particular, Draghi said.
The eurozone would have "disastrous" deflation today if a
German 'nein' had prevailed, Draghi said.
"Imagine if we had done nothing, if we had crossed our arms
saying 'nein zu allen', no to anything," he said.
"Today we'd find ourselves with what would be disastrous
deflation".
Also on Thursday, the ECB cut eurozone inflation forecasts,
from 1% to 0.1% this year and from 1.6% to 1.3% in 2017.
Inflation is expected to reach 1.6% in 2018, Draghi said.
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