- Mario Draghi, ECB President
Those, who had awaited QE announcement from the ECB, are definitely disappointed, as the central bank decided to slash already ultra-low interest rates even further in an attempt to stimulate the faltering Euro zone economy. Following the June's rate cut from 0.25% to 0.15% and introduction of negative interest rates, the ECB has cut its benchmark rate to 0.05% after yesterday's meeting. The ECB also cut its deposit rate, what banks pay to keep their money at the central bank, to minus 0.2% from minus 0.1%. The negative rate is an effort to urge banks to lend money by imposing a financial penalty for keeping it in the safety of the ECB's accounts. Lower rates tend to stimulate more lending and growth. However, lower rates become less effective as a stimulus tool as they approach zero. Therefore, the central bank announced a new stimulus programme, which will buy debt products from banks to make credit cheaper, boosting investment and growth at a time when the 18-nation economy has stalled. The scheme is somewhat different from the stimulus programme undertaken by the Fed, which includes large-scale purchases of government bonds. Nevertheless, during the press conference the ECB Chief Mario Draghi admitted that an option of launching QE was discusses during the board meeting, but the comfortable majority decided to opt out this time. Still, the announcement moved markets. The Euro weakened versus the U.S. Dollar, falling to $1.2995, the first time below the 1.30-mark since July 2013.
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