ECB unveils hotly-awaited stimulus package
Eurozone gets fresh help to bolster flagging growthEuropost
European Central Bank governors overcame divisions on 12 Sept. to agree a "big bang" package of monetary easing measures, aiming to support the Eurozone economy through external shocks but prompting a howl of complaints from the White House.A key interest rate deeper into negative territory, new net purchases of government and corporate debt and support to struggling banks were all agreed at the Frankfurt meeting, a spokeswoman said.
With lower rates, ECB policymakers "are trying, and succeeding, in depreciating the Euro against the VERY strong dollar, hurting US exports," US President Donald Trump complained in a tweet soon after the decision.
The moves mean ECB president Mario Draghi, who will yield his seat to departing International Monetary Fund chairwoman Christine Lagarde on 31 October, has set the tone for her first months - and possibly years - in office, although he will chair a final meeting next month.
Looking in more detail at the measures, the deposit facility rate, paid by banks on reserves parked at the ECB, was already negative, but has now been cut from minus 0.4% to minus 0.5%. The ECB also said it was re-starting quantitative easing. It will buy €20bn of debt a month from 1 November.
The Eurozone's main interest rate has remained unchanged at zero.
Negative rates mean lenders pay the central bank to park their cash in Frankfurt. Meanwhile the ECB left its two other headline rates unchanged, and said that all three would remain at present or lower levels "until it has seen the inflation outlook robustly converge" towards its just-below-two-percent target. The "forward guidance" on rates abandons previous language naming mid-2020 as the earliest possible date for a rate hike.
The biggest question ahead of Thursday was whether the central bank would restart "quantitative easing" (QE) net purchases of bonds, which amounted to 2.6 trillion euros ($2.9 trillion) between 2015 and 2018. Despite public opposition from governing council members like Germany's Jens Weidmann or Dutchman Klaas Knot, QE will resume from 1 November, at a pace of 20 billion euros per month "for as long as necessary" to boost inflation. But governors stopped short of committing to the €600 billion of QE that Pictet Wealth Management strategist Frederik Ducrozet said could prove necessary.
On top of the rates and bond-buying moves, policymakers also agreed a "tiering" system to spare some of banks' deposits the harshest negative rates, after years of complaining from financial firms. Uncushioned negative rates had so far cost Eurozone lenders around seven billion euros per year.
Lastly, the ECB confirmed its latest round of "TLTRO" cheap loans to banks will go ahead from 19 September, offering more favourable conditions to those who lend cash on to the real economy.