UNEXPECTED: ECB CUTS RATES AND THE EURO IS TANKING

Mario DraghiAP ImagesMario Draghi

The European Central Bank just unexpectedly cut rates.

The ECB’s main refinancing rate has been cut to 0.05%, its marginal lending facility is at 0.3%, and its deposit facility remains in negative territory at -0.2%.

Expectations were for these rates to remain at 0.15%, 0.4%, and -0.1%, respectively.

Following this announcement, the Euro is making new lows against the U.S. dollar, falling to less than $US1.31 against the dollar.

ECB president Mario Draghi is set to being his press conference at 8:30 am ET, where he will expand on this decision, which was not anticipated by the market.

A report from Reuters just ahead of the ECB’s announcement said that the ECB is preparing to purchase up to 500 billion Euros worth of bonds as part of an easing program to help bolster the flagging Eurozone economy.

Following the report, Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said, “In one line: Surprise rate cuts point point to currency now being a key policy tool.”

Vistesen added: “The further tweak in conventional monetary policy was a surprise, given the governing council had noted that the central bank was essentially already at its lower bound. The only real interpretation that makes sense here is that the governing council now sees the currency as an active and important policy tool.”

Here’s the full statement from the ECB:

4 September 2014 – Monetary policy decisions

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

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