WORLD FINANCIAL MARKET
FRANKFURT, Germany—The European Central Bank on Thursday ramped up efforts to stimulate the sluggish eurozone economy, but the measures fell far short of what investors had expected and stocks took a painful tumble.
For weeks, ECB head Mario Draghi had indicated that the bank, the chief monetary authority for the 19 countries that use the euro, would act decisively to raise inflation and shield the region from a global slowdown, notably in China.
On Thursday, the bank cut a key interest rate by less than expected. It also chose not to boost the amount of government bonds it buys each month through its stimulus program, which aims to help the economy by cutting loan rates. Instead, the ECB extended its bond buying for six more months at the same level — until March 2017.
Analysts said Draghi might have encountered pushback from stimulus skeptics on the 25-member governing council. With new projections from ECB staff indicating the economy is growing, albeit gradually, Draghi may have been persuaded to wait to see if the region’s low inflation rate—the bank’s chief concern— turn up decisively next year.
The main move was to cut the interest rate on deposits from commercial banks from minus 0.2 percent to minus 0.3 percent. That is intended to push banks to lend by imposing a penalty on the cash they park at the central bank.
Many market analysts had predicted a bigger cut to minus 0.4 percent or even more.
Draghi also announced that the bond-buying program, which aims to make borrowing cheaper for businesses and consumers, will run at least until March 2017 or beyond if necessary. It had previously been due to run at least through September 2016.
Because the monthly cap of 60 billion euros in bond purchases was maintained, that will increase the overall size of the 1.1 trillion euro ($1.2 trillion) program by at least 360 billion euros.
The ECB wants to raise annual inflation toward its goal of just under 2 percent as part of its legal mandate to maintain price stability. Annual inflation in the eurozone stands at only 0.1 percent and has hovered around that level for a year or so.