European Central Bank cuts main interest rate to zero to try to lift eurozone economy

[webfact]

European Central Bank cuts main interest rate to zero to try to lift eurozone economy



"Rates will stay low, very low, for a long period of time"

FRANKFURT: -- The European Central Bank has further cut the cost of borrowing to try to get the eurozone economy growing and to stave off deflation.

That is because the ECB sees inflation ultra-low this year at a mere 0.1 percent – way lower than the 1.0 percent it forecast just in December. So, its main interest rate has gone down to 0.0 percent from 0.05 percent.

ECB President Mario Draghi said it was taking these steps to stop exceptionally lower inflation from leaking into the overall economy: “It is crucial to avoid second-round effects.”

He added: “Rates will stay low, very low, for a long period of time. We don’t anticipate that it will be necessary to reduce rates further.”

More money printing

The ECB is also boosting its quantitative easing programme – in essence printing money to buy bonds and other assets which puts more cash into the economy.

QE goes up from 60 to 80 billion euros a month and will include corporate debt for the first time.

Draghi explained “We decided to include investment grade euro denominated bonds issued by non-bank corporations, established in the euro area in the list of assets that are eligible for regular purchases.”

Draghi said those asset buys will continue until March 2017 or beyond if necessary.

Cheap loans and deposit rate cut

To persuade commercial banks to take more risks and help businesses and individuals rather than hoarding cash, the ECB has launched four new cheap loan packages, known as TLTROs.

Draghi said there will be a reward for banks that lend more: “A bank that is very active in granting loans to the real economy can borrow more than a bank that concentrates on other activities. For banks whose net lending exceeds the benchmarks, the rate applied to the TLTRO2 will be lower and can be as low as the interest rate on the deposit facility prevailing at the time of the take-up.”

In another stimulus move, the ECB again cut its deposit rate for banks leaving money on deposit with it.

That was already negative meaning banks had to pay to park cash in the ECB’s vaults; now they will have to pay even more.

The deposit rate goes down from minus 0.3 percent to minus 0.4 percent.

The idea is to further persuade those commercial banks will lend money rather than sitting on it to avoid risk.

Will it work?

Even though the ECB has spent 700 billion euros buying bonds in the past year those purchases have achieved little as falling prices for oil and other raw materials have pulled down inflation.

The initial reaction from the financial markets was positive. The euro fell in value by more than one percent against the US dollar and European share prices rose, but that bump only lasted a few hours.


-- (c) Copyright Euronews 2016-03-11

[shirtless]

Why not reduce the interest rates for the end user , why should banks get the easy money, they do nothing but hinder the economy.

[Steely Dan]

The phrase pushing on a piece of string springs to mind. Deflation is as much a psychological phenomenon as an economic one. People have no faith in the future prospects for the economy so they will not spend money they don't have however low the interest rates are.

[Rancid]

Negative interest rates getting closer, then comes the ban on cash.

[NeverSure]

The Euro was a dream. This whole thing gives me a headache. The Eurozone Central Bank can just print money. The US and the UK can't because they have laws against it. If they need more money they have to borrow it by issuing bonds. The Euro appeared out of nowhere and will go nowhere.

The US and the UK have actual assets and economies to gain trust in them. The ECB has no such thing. It is a vaporous cloud of nothingness that appeared out of nowhere.

I have a great idea. Why doesn't the ECB print so much money that everyone will be rich? Shiploads of it and warehouses full of it.

What could go wrong?

[onni4me]

And markets valued this in 15 minutes as nothing had happened...it is going to crash and central banks are out of options.

ECB president Mario Draghi pulled out a bazooka today with a package that allegedly exceeded expectations.

1. QE goes from €60bn to €80bn
2. ECB to buy corporate bonds
3. ECB Cut the deposit rate to -0.4% from -0.3%
4. The main refinancing rate fell by 5 basis points to 0 percent

The Financial Times reported “The euro dropped sharply in response to the package of measures – a clear sign that the central bank had manage to excel even aggressive expectations.”

Oops!

Second Thoughts

It’s not the news that matters, it’s the market’s reaction to it. The market had strong second thoughts.

That’s a huge 2.7% swing in about 3 hours.

So much for the bazooka theory. Is this a “clear sign” Draghi failed?

http://mishtalk.com/2016/03/10/draghis-shock-and-awe-bazooka-backfires-with-huge-whipsaw/

[JohnDodd]

Study the face of this monetary "Genius" and you can easily spot the evil intent in his financial prognosis, he doesn't believe it him self. These Central Bank gangsters already know the game is finished, rather than listen to these sub-human trash, listen to Jim Willie at Golden Jackass.co, or Bill Holter and Andy Hoffman, or Peter Schiff , they know what they are talking about, and according to all of them, Fiat paper has had it.

[Krataiboy]

Negative interest rates getting closer, then comes the ban on cash.

Bang on. The banks have nowhere left to hide. They are broke and so is the entire global economic system. Just wait till that quadrillion dollar derivatives bubble pops. . .

[baboon]

And yet there are those who want to welcome untold numbers more of destitute people into Europe? I simply don't understand..

Edited March 11, 2016 by baboon

[Steely Dan]

And yet there are those who want to welcome untold numbers more of destitute people into Europe? I simply don't understand..

What you need to ask is how long before the armies of unskilled, unemployed and illiterate migrants can be supplied with credit cards?

[baboon]

And yet there are those who want to welcome untold numbers more of destitute people into Europe? I simply don't understand..

What you need to ask is how long before the armies of unskilled, unemployed and illiterate migrants can be supplied with credit cards?

Interesting you you say that. My bank in the UK are forever pestering me to simply sign on the dotted line for a loan they know I can't pay back. I say that again: For a loan THEY KNOW I can't pay back. Just what the hell is going on?

[elgordo38]

I noticed right right after this announcement was made gold made a big move upwards from a slow downtrend. Look for this to continue today. Draghi will not stop till he drags us all down. He claims there will be no more interest rate cuts yeah sure not till next time.

[Srikcir]

This ECB rate cut puts a lot of pressure on the Bank of Thailand to also make a rate cut, ie., at least 0.5%.

It's all about attracting global capital to restart and invigorate growth.

By the end of 2016 I expect a total BOT rate cut of 0.75% on the heels of another yuan adjustment by the Chinese.

[rijit]

And yet there are those who want to welcome untold numbers more of destitute people into Europe? I simply don't understand..

What you need to ask is how long before the armies of unskilled, unemployed and illiterate migrants can be supplied with credit cards?

True with the credit card, but not b4 they start paying taxes, buying clothes food paying rent,start businesses buying cars fuel ect ect and so the economic cycle starts,, before you know it they are valued contributing members of society rationally veiwed by most as an asset unless of coarse youre a narrow minded racist bigot .

Sent from my GT-I9000 using Thaivisa Connect Thailand mobile app

Edited March 11, 2016 by rijit