European Central Bank goes big on stimulus to lift economies
WASHINGTON The European Central Bank delivered its biggest stimulus package in several years Thursday, cutting a key interest rate and rolling out a massive bond-buying program meant to stabilize the euro zone economy, which is being wracked by political turmoil and international trade tensions.
The package cuts the main deposit rate 10 basis points to a record low of -0.5 per cent and calls for 20 billion euros of net asset purchases each month for “as long as necessary.”
In a news conference, ECB president Mario Draghi said the package is a response to the darkening economic outlook across the continent, but emphasized that countries with purchasing power needed to amp up spending to get things back on track.
“It’s high time for fiscal policy to take charge,” Draghi said.
The package is a sort of bold curtain call for Draghi, who is leaving after his eight-year term ends in October.
“This is Mario Draghi’s final ‘whatever it takes,’” Carsten Brzeski, chief economist with ING Germany told investors in a note Thursday. “Despite all market excitement now, the question remains whether this will be enough to get growth and inflation back on track as the real elephant in the room is fiscal policy. It is clear that without fiscal stimulus, Draghi’s final stunt will not necessarily lead to a happy end.”
The European benchmark Stoxx 600 index rose 0.6 per cent following the announcement, but European bank stocks slumped and the euro was down 0.4 per cent against the dollar, implying Draghi’s “bazooka” package still disappointed investors.
U.S. President Donald Trump seized on the widely expected stimulus package in a tweet Thursday. “They are trying, and succeeding, in depreciating the euro against the VERY strong Dollar, hurting U.S. exports. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”
The president has repeatedly complained about the ECB’s use of negative interest rates to spur growth.
On Wednesday, he issued his first call to the Federal Reserve to cut interest rates below zero. But pushing the Fed to embrace such emergency steps is at odds with his customary boasts about the strength of the U.S. economy.
“The USA should always be paying the lowest rate,” Trump tweeted Wednesday. “No Inflation! It is only the naiveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads.’”
Turkey slashed its interest rate by 3.25 percentage points Thursday, just before the ECB stimulus announcement, joining the growing list of central banks across Europe, Asia and Australia that have lowered interest rates in recent months, with many attributing the need for economic stimulus to the fallout from the U.S.-China trade war. The conflict, which has dragged on for more than a year, is upending global supply chains and significantly dampening trade volumes, causing contractions in powerful, export-driven economies like Germany.