ECB promises stimulus buys ‘as long as necessary’
frankfurt — The European Central Bank promised an indefinite supply of fresh asset purchases and cut interest rates deeper into negative territory on Thursday, an effort to prop up the ailing euro zone economy that was cheered by financial markets.
Coming in the final weeks of ECB President Mario Draghi’s mandate, the moves will increase pressure on the US Federal Reserve and Bank of Japan to ease next week to support a world economy increasingly characterised by low growth and protectionist threats to free trade.
Yet there were immediate doubts as to whether the ECB measures — the few remaining in its monetary policy arsenal — would be enough to boost a euro zone recovery in the face of a US-China trade war and possible disruption from Brexit.
The ECB cut its deposit rate by 10 basis points to a record low of -0.5 per cent, promised that rates would stay low for longer and said it would restart bond purchases at a rate of €20 billion a month from November 1.
“The Governing Council expects (bond purchases) to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates,” it said.
Given that markets do not expect rates to rise for nearly a decade, such a formulation suggests that purchases could go on for years — an eventuality Draghi did not challenge.
“We have a relevant headroom to go on for quite a long time at this rhythm without the need to raise the discussion about limits,” he told a regular news conference after the meeting. The news triggered a rally in euro zone bonds that would cut the cost of borrowing in the 19-country currency bloc, and pushed the euro below $1.10, prompting expectations that inflation could rise.
The ECB also eased the terms of its long-term loan facility to banks and said it would introduce a multi-tier deposit rate facility to help them.
Draghi, whose pledge in 2012 that the ECB would do “whatever it takes” to save the euro is credited with helping restore stability at the peak of the bloc’s debt crisis, stressed the currency zone needed more support.
We have a relevant headroom to go on for quite a long time at this rhythm without the need to raise the discussion about limits