ECB cuts rates to below zero, revives QE

The European Central Bank cut interest rates further below zero and revived bond purchases after president Mario Draghi overcame critics of his stimulus policies to make a final run at reflating the eurozone economy. ECB reduced the deposit rate to minus 0.5% from minus 0.4%, and said it would buy debt from Nov 1 at a pace of €20 billion ($30.4 billion) a month for as long as necessary to hit its inflation goal.

“We have headroom to keep going on for some time at this rhythm,” Draghi, whose eight-year term ends next month, said at his press conference in Frankfurt. “We still think the probability of recession for the euro area is small, but it’s gone up.”

ECB also cut the cost of its long-term loans to banks, and lenders will get an exemption from negative rates for some of their deposits after an outcry from the industry about the squeeze on profitability.

ECB changed its guidance on interest rates to say they would stay at present or lower levels until the outlook for inflation “robustly” converges to its goal of just below 2%. It previously expected borrowing costs to stay unchanged until mid-2020. It also scrapped a 10-basis point rate premium previously attached to its long-term loan programme.

The actions prompted US President Donald Trump to tweet that ECB is “acting quickly” while the Federal Reserve “sits, and sits, and sits”.