European Central Bank Launches New Bond-Buying Program

The European Central Bank (ECB) announced a massive new bond-buying program Thursday in a bid to stimulate the ailing euro zone economy.

President Mario Draghi announced that the central bank would cut its main deposit rate by 10 basis points to -0.5%, in line with expectations. The ECB now expects interest rates to remain at their present or lower levels until it has seen inflation outlook “robustly converge to a level sufficiently close to but below 2% within its projection horizon, and such convergence has been persistent.”

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The ECB has also changed its TLTRO rate to provide more favorable bank lending conditions and match that of its refinancing rate, erasing a previous 10 basis point spread. In line with market expectations, the ECB also introduced rate tiering, a measure encouraged by the heads of various major European banks during the latest earnings season.

The central bank’s quantitative easing program will entail 20 billion euros per month of asset purchases for as long as it deems necessary.

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Markets had widely expected some form of stimulus package, though hawks within the European Central Bank (ECB) Governing Council had moved in recent weeks to downplay the scale of the impending measures.

A slowing euro zone economy, persistent low inflation and the U.S.-China trade war had all pointed toward the central bank being forced to inject stimulus.

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Recent economic data has not been promising, though the latest Purchasing Managers’ Indexes (PMIs) had indicated some stability despite enduring industrial weakness.


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