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Lukewarm response as Draghi unveils ECB eurozone stimulus plan


Lukewarm response as Draghi unveils ECB eurozone stimulus plan


The European Central Bank has announced fresh stimulus measures in a bid to boost inflation and the eurozone’s recovery.

The ECB is to extend its quantitative easing programme by six months. The bank’s President Mario Draghi told a news conference that its asset buying programme would continue at least until the end of March 2017, or beyond if necessary, at the current rate of 60 billion euros a month.

The scheme is to be enlarged to include the purchase of municipal and regional bonds.

Earlier the bank announced that the main interest rates would remain unchanged – at 0.05 percent for main refinancing operations, and 0.3 percent on the marginal lending facility.

But the main bank deposit rate has been cut further into negative territory – from -0.2 to -0.3 percent, charging banks more for parking cash with the central bank in a bid to boost lending.

“Today’s decisions also reinforce the momentum of the euro area’s economic recovery. The Governing Council will closely monitor the evolution in the outlook of price stability and if warranted is willing and able to act by using all the instruments available within its mandate in order to maintain an appropriate degree of monetary accommodation,” Mario Draghi said.

But the European Central Bank’s stimulus package has had a lukewarm response. The questions began as soon as the ECB president finished his announcement.

Investors were disappointed. They had anticipated a 25 percent increase in asset buys; some wanted a bolder deposit rate cut.

The euro jumped over three percent at one stage and bond yields surged.

The ECB wants to boost inflation, but there are warnings that the market reaction may tighten financial conditions and make it even harder to generate.

Draghi told the news conference that inflation forecasts were being revised downwards: to 1.0 percent from 1.1 percent in 2016, and to 1.6 percent from 1.7 percent in 2017.

On Wednesday the publication of new data showed that inflation had slowed.

Some analysts had been expecting more measures as inflation remains stubbornly below the ECB’s target of just under two percent.

The euro has weakened nearly seven percent against the dollar since the bank’s last meeting in October.

Draghi acknowledged there were continued downside risks to the inflation outlook, and called on eurozone member states to do more to improve the economy.

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