The European Central Bank cut rates to a surprise record low, and launched a sweeping round of stimulus

ECB president Mario Draghi Reuters
  • The European Central Bank has just announced a sweeping round of stimulus for the eurozone, announcing both a rate cut and return to quantitative easing.
  • Interest rates were cut by 0.1% to their lowest ever level of -0.5%, and the bank will start purchasing €20 billion worth of bonds each month from November.
  • View Markets Insider’s homepage for more stories.

The European Central Bank has just announced a sweeping round of stimulus for the continent’s slowing economy cutting interest rates to their lowest ever level, as well as a round of quantitative easing.

The bank said in a conference in Frankfurt on Thursday announced it would cut its deposit rate from -0.4% to -0.5% as well as start the purchasing of €20 billion of bonds every month from November onwards.

The move marks the first time the deposit rate has changed since 2016, as Europe’s economy has struggled amidst losses in demand both from Brexit and the trade war, while quantitative easing was last used in December of last year.

The ECB also will also introduce a tiered system to exclude some of the banks that would be suffering from negative rates – something that has been done in Japan and Denmark already.

On its website, the ECB also said that the key interest rates will remain at the level they are now till inflation hits 2%.

‘More than most expected today’

“Taken as a whole the ECB has delivered a package of measures which is more than most expected today. Admittedly, the 10 basis point cut to the deposit rate was the least that it could have done and the monthly pace of asset purchases, at €20 billion beginning on 1st November, was a bit smaller than expected,” said Andrew Kenningham, chief Europe economist at Capital Economics in an email to Markets Insider.

“But the key point is that this commitment to more QE is open-ended: it will end shortly before the bank begins raising interest rates.

“We will get more details in the press conference shortly, but on first glance this looks like a pretty dovish package. It remains doubtful, however, that this will do much to reboot the euro-zone economy let alone achieve the near 2% inflation target,” he added.

The ECB follows the Federal Reserve and other global central banks in cutting rates to help stimulate the global economy. The Federal Reserve is also expected to lower rates later this month.

Mario Draghi, the head of the ECB will be stepping down from the role this fall and is to be replaced by Christine Lagarde, the current head of the IMF.