Daily Management Review

ECB Cuts Down Interest Rates While Boosting QE


03/11/2016


Slow growth in global economy coupled with the low inflation rates made ECB bring down the margins on its interest rates.



On the 10th of March 2016, the European Central Bank took a decisive step to attend to the “low inflation and the global economic slowdown” that has been prolonging so far.
 
To the surprise of the analysts the “main interest rate” on ECB were cut down to “5 basis points”, while increasing “quantitative easing (QE) by €20bn”.
 
The “asset purchase programme” on a monthly basis will expand its limit to “€80bn” from the month of April 2016 as the market prices show an increment of “€10bn”.
 
Additionally, the “deposit facility” rates were also slashed down by ECB whereby lowering “10bps to -0.40%”, although the said move was expected by the analysts.
 
Nevertheless, the step taken towards reducing the margin of “lending facility”, whereby bringing the same “0.25% from 0.30%” has taken the anticipating marketers by surprise, while yet another surprise awaited with the information that “investment grade bonds issued by non-bank corporations will be included in the list of assets for regular purchases”.
 
Following the said announcement, the euro came down by “1.37% to 1.0846” compared to the U.S dollar strength. Furthermore, a new “series of four targeted longer-term refinancing operations”, with a maturity period of four year, is all set for the launch in the month of June 2016.
 
The borrowing terms in the above mentioned operations could mirror the low “interest rate on the deposit facility”. In the words of Holger Schmieding, analyst at Berenberg:
"The comprehensive package exceeds expectations by enough to have a positive confidence impact not just on financial markets but also on business confidence in the Eurozone”.
"In the absence of any new shock such as Brexit, the package will help to get the Eurozone back to trend growth of annualised rates around 1.6% by mid-2016."




References:
http://www.digitallook.com/
 







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