The European Central Bank has taken measures aimed at bolstering the eurozone’s fragile economy. The ECB has cut interest rates across the Eurozone to zero. Irrespective of the steps taken, markets are still under pressure and exhibits volatility across Europe.
As expected by markets, the ECB cut its deposit rate by 10 basis points, further into negative territory to -0.4%. The latest cut in the deposit rate means the ECB will be charging banks more to hold their money overnight, with the aim of encouraging them to lend it to businesses. The marginal lending rate, paid by banks to borrow from the ECB overnight, was cut from 0.3 per cent to to 0.25 per cent.
The fresh stimulus was partly a response to new quarterly economic forecasts, published by the ECB on Thursday, which showed growth and inflation likely falling sharply below the central bank’s December projections. It now expects an inflation rate of just 0.1% this year, down from 1% projected in December and far below its target of near 2%.
The bank’s president, Mario Draghi, said the outlook for economic growth in the euro zone had been revised slightly down – mainly reflecting the weakened outlook for the world economy – but added that he did not anticipate needing to reduce rates further.
- Interest rates will remain at present or lower levels for an extended period of time
- The outlook for growth has been revised down, reflecting weakening global prospects.
- 2016 GDP revised down to 1.4% from 1.7%.
- 2017 GDP revised down to 1.7% from 1.9%, GDP to be 1.8% in 2018.
- Inflation forecast for 2016 slashed to 0.1% from 1%.
- Inflation to be 1.3% in 2017, will average 1.6% in 2018.