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ECB fires fresh salvos in anti-deflation battle

Mario Draghi-euro

Frankfurt / AFP

The European Central Bank (ECB) on Thursday fired off a new volley of shots in its ongoing battle to avert deflation in the euro area and jumpstart economic recovery in the region.
The ECB slashed already record-low interest rates, said it would pump massive new sums into the banking system and, for the first time, would start buying corporate bonds.
Initially, the unprecedented scale of the ECB’s action took financial markets by surprise, sparking a rise in eurozone stock markets and sending the euro lower against the dollar. But stock prices subsequently fell back.
“Wow. In almost every respect, the ECB went beyond expectations today,” said Berenberg Bank economist Holger Schmieding.
“The central bank came out all guns blazing,” agreed Craig Erlam, senior market analyst at Oanda. The ECB lowered the main rate at which it lends to commercial banks to zero for the first time ever from 0.05%. It pushed the interest rate on its deposit facility for commercial banks to -0.40% from -0.30%. This means commercial banks in fact pay the ECB if they choose to transfer their excess funds at the end of the day.

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