It’s time for the European Central Bank showdown.
For months its President, Mario Draghi, has been providing assurances that his outfit has the full range of stimulative monetary policy tools at its disposal to save the euro zone’s faltering recovery. But, aside from a little judicious forward guidance on the future of low interest rates, the ECB has so far stopped short of using any of these silver bullets.
Today all that changed. The ECB has cut its key refinancing rate from a historic low 0.25% to an even lower 0.15%. And in an unprecedented move for a big central bank, it has cut its deposit rate, which it pays banks for parking funds with it overnight, into negative territory, at -0.1%.
There’s been endless speculation as to what else Mr. Draghi might have up that rather well-tailored sleeve of his. You’ve probably got your own view by now.
Much was expected of the ECB today and they duly delivered,” says Steven Bell, Chief Economist at F&C Investments. Adds they did “nothing that hadn’t been talked about extensively in the markets but the fact that they did everything has led to a significant positive reaction in the equity markets.” Mr. Bell says, “having pushed as hard as they can, the ECB must now sit back and wait to see if the economy responds. So far, the weaker euro is encouraging but only time will tell if there is broader economic response.”
