ECB’s £19bn bid to rescue the eurozone

Draghi fires off his final bazooka with rate cut

MarIO Draghi has been forced to restart the eurozone’s multibillion pound money-printing programme as the bloc edges closer to recession.

In one of his final acts as president of the european Central Bank, Draghi slashed interest rates even deeper into negative territory and announced the institution will start pumping £19bn a month into the economy as part of desperate efforts to ward off a slowdown.

It comes amid renewed fears over the economy of the eurozone, which the 72year-old Italian is widely credited with saving from collapse through a pledge to do ‘whatever it takes’ in 2012.

Draghi’s willingness to stop at nothing has led to economists referring to his arsenal of monetary policy weapons as a ‘ bazooka’, which he fired once again yesterday in the hope of jump-starting the economy.

Draghi admitted that the probability of a recession has risen in the single currency area, as growth forecasts were slashed by the eCB.

Growth in the bloc’s economies has been slowing, and inflation has remained stubbornly low.

Surveys suggest Germany may already be in recession after its prized manufacturing sector was hit by a sharp slowdown in sales of diesel cars due to pollution fears, and the trade war between China and President trump.

the eCB’s package includes a cut to its deposit facility rate, which is charged to banks around the world who park their reserves at the eCB, from minus 0.4pc to minus 0.5pc. this rate has been negative since 2014, meaning that rather than gaining interest, banks are essentially being charged to keep their money with the eCB in a reversal of all normal practice. the hope is that banks will be encouraged to lend to consumers and businesses, boosting spending, rather than squirreling their money away.

Meanwhile the central bank will pump £19bn a month into europe’s financial markets by buying bonds from november onwards, in a process known as quantitative easing.

the announcement, following a meeting of the eCB’s governing council in Frankfurt, initially knocked the euro, although it later recovered to rise 0.54pc to $1.1066. against the pound, it rose 0.35pc meaning £1 is worth €1.1156.

the eCB’s move provoked a furious response from President trump, who complained that the change in policy would hit US exports to europe as goods would become more expensive in euro terms. He also criticised bosses at the US Federal reserve, who have refused to cut interest rates despite his demands.

On twitter, trump said: ‘european Central Bank, acting quickly, cuts rates 10 basis points. they are trying, and succeeding, in depreciating the euro against the VerY strong dollar, hurting US exports. and the Fed sits, and sits, and sits.’

the move marks the first time since March 2016 that the eCB has cut rates. But Draghi said the policy had nothing to do with exchange rates. referring to trump as the ‘First tweeter’, he said: ‘We have a mandate, we pursue price stability, and we do not target exchange rates, period.’

Draghi faced an unprecedented revolt as he sought to restart quantitative easing, with the move opposed by a group including German, French and Dutch bank governors in a governing council vote.

German think-tank Ifo Institute, meanwhile, warned the country may already have fallen into recession and cut its forecast for growth in Germany over the next two years.