Draghi is concerned over developments in the eurozone. Sure enough there is growth, but it is too low. Inflation is as close to zero as it can get something that is not a healthy sign. Therefore cut Draghi Thursday its key rate from 0.05 percent to record low 0 percent. Interest rates will remain low for an extended period. Draghi suggests even that interest rates could be cut even more, ie to less interest.
The ECB also put down the deposit rate to minus 0.4 percent. It was already at minus 0.3 percent. Cut by 0.1 percentage points was expected and means that it becomes more expensive for banks to deposit money in an account at the central bank from one day to the next. Draghi point about it is that money should be used, rather than hiding it, thus gaining momentum in the European economy again.
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Bonds and loans
But it was not just the interest rate that was turned even lower down the draghi great add. He announced on Thursday that the ECB increases the intensity of the bond purchases, to help increase the money supply in the economy. The scope of the bond purchases will be increased from 60 billion euros to 80 billion euros a month. Acquisitions must also henceforth include corporate bonds.
In addition, Draghi conduct a new round of “money printing”, the central bank’s so-called targeted long-term refinancing operation (TLTRO), which is to offer loans with a maturity of four years to banks, which could provide loans to small and medium-sized enterprises, which form the backbone of the eurozone economy. Banks have previously been criticized for not providing enough loans to companies. The ECB hopes four-year loan with record low interest rates of banks will increase lending growth, as Draghi about speeches as “still too low.”
See also: Lower less interest and more money printing in the euro zone
Poorer prospects
at a press conference Thursday said Draghi that the central bank lowers its forecast for inflation to 0.1 percent for this year, down from a previous estimate of 1 percent. He envisions an inflation rate of 1.3 percent next year instead of the previous forecasts of 1.6 percent and in 2018 think he inflation will be 1.6 percent.
He also lowers estimates for growth in the euro zone, from 1.7 percent to 1.4 percent this year. Next year he estimates a growth of 1.7 percent, down from 1.9, and in 2018 shows the forecast from the ECB a growth of 1.8 percent.
See also: What if there was a negative rate?
Positive reaction
So far, the ECB’s interest rate cuts and monetary printing had the desired effect, and it is possible that the escalation now getting unwanted side effects. Several analysts have warned that markets may lose confidence in the ECB and other central banks measures if they do not work as planned.
Draghi hope that Thursday’s rate cut, and opening for further cuts in the future, to get the economy on track.
Currently, it appears that the market can be enchanted. While it was expected that the deposit rate in the ECB would cut, came the decision to lower the key interest rate more surprising on the market.
The measures Draghi presented Thursday afternoon immediately led to the euro has weakened 1 percent against the dollar. Meanwhile, share prices rose in many European exchanges. The objective of interest rate reduction and the “money printing” is to raise inflation and relaunch the economy in the eurozone.
See also: Continued faith in Norwegian interest rate cut next week
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