European Central Bank cuts rates deeper into negative territory, relaunches asset-purchase program

Cornelia Mascio
Settembre 12, 2019

U.S. President Trump reacted negatively.

Attention now turns to ECB President Mario Draghi's 1230 GMT news conference, at which he will also present fresh growth and inflation projections. All things being equal this is a market that continues to look very negative longer term and quite frankly with the interest rates in the United States offering more return than the European Union, even though the Federal Reserve is likely to cut them back a bit, suggest that the Euro will continue to grind lower.

Thursday's decision sent the euro below 1.06 versus the USA dollar, where it is on track to close at its lowest level since May 2017.

The purchases pump newly created money into the financial system to lower borrowing costs and raise inflation.

The bank also extended a promise to keep rates at record lows for as long as necessary. "They get paid to borrow money, while we are paying interest!" "For example, we are assuming that there will be no hard Brexit or escalation of the USA trade war".

The ongoing spat has dented its manufacturing sector in particular, as factories have been hit by falling orders.

The ECB also said it was re-starting quantitative easing.

Lagarde is set to take the reins on October 31 - the date now set for Brexit. While the European Central Bank has a target for inflation of below, but close to, 2% over the medium term, inflation has remained muted amid weaker economic growth. So, what was announced by the European Central Bank today?

Eurozone growth slumped to 0.2% in the second quarter of 2019, from 0.4% in the first three months of the year, while some economies, including Italy and Germany, have come close to the brink of recession in recent months.

'But let's face it, neither of them truly think [exchange rates are the target] and this is more of a case of a central banker being drawn into a political argument that he'd rather steer clear of, ' said Craig Erlam from Oanda.

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