The European Central Bank cut all its main interest rates, expanded its bond-buying stimulus program and offered new cheap long-term loans to banks, making an unexpectedly aggressive move to boost inflation and economic growth in the 19 countries that share the euro.
The bank’s steps on most counts exceeded expectations among analysts, suggesting that it was determined to have an impact and avoid the market disappointment that occurred after its Dec. 3 meeting, when it was seen as having done less than it could have. Stock markets surged Thursday after the ECB’s announcement.
At Thursday’s meeting, the central bank:
— Cut its main benchmark rate to zero from 0.05%, a mostly symbolic step,
— Lowered the rate on deposits from commercial banks at the central bank to minus 0.40% from minus 0.30%, an unconventional move aimed at pushing banks to lend rather than hoard cash,
— Increased its monthly bond purchases to 80 billion euros ($88 billion) from 60 billion euros, pushing more newly printed money into the economy,
— Added corporate bonds to the assets it can buy, expanding the potential scope of the purchase program,
— Announced long-term cheap loans of up to four years to help support banks.
The negative rate on deposits — in essence, a tax on bank’s excess funds — is an unusual step aimed at pushing banks to lend rather than leave money at the central bank.
More lending would promote growth and push up inflation from a worryingly low annual rate of minus 0.2%. The rate cut and the other measures to expand stimulus underline how far the ECB sees itself from achieving its goal of inflation of just under 2%.