European Central Bank launches new stimulus for economy

The Associated Press FRANKFURT (AP) — The European Central Bank on Thursday delivered a new blast of monetary stimulus to help the shaky economy in the face of uncertainties like the U.S.-China trade conflict and Brexit.

The decision comes as central banks around the world including the U.S. Federal Reserve move toward lower rates to support slowing global trade and growth.

The ECB, the central bank for the 19 countries that use the euro, cut the rate on deposits it takes from banks to minus 0.5 percent from minus 0.4 percent. That is a penalty rate that pushes banks to lend excess cash.

It also said it would restart its bond-buying stimulus program, which pumps newly created money into the financial system to lower borrowing costs and help the economy. It will buy €20 billion ($22 billion) a month in government and corporate bonds for as long as needed.

The central bank furthermore extended its promise to keep rates at record lows until inflation goes back up sustainably to its goal of just under 2 percent. At last count, inflation was just 1 percent.

The ECB has joined the Fed and other central banks around the world in lowering rates and making credit cheaper to help the economy. The Fed cut its key policy rate in July for the first time in a decade, to a new range of 2 percent to 2.25 percent. Markets believe there is a near certainty the Fed will cut rates for a second time at its next meeting Sept. 17-18.

ECB President Mario Draghi was able to push the stimulus package through the 25-member governing council despite skepticism about the size of the package voiced by several members ahead of time. Some aspects of the package such as the rate cut and the bond purchases were smaller than some analysts expected although the open-ended timing could partly offset that.

The package ensures that the stimulus policies will influence the ECB’s stance for months after Draghi leaves office. Thursday was his next-to-last meeting before his eight-year term ends on Oct. 31; Christine Lagarde, the outgoing head of the International Monetary Fund, is due to take his place and has endorsed Draghi’s measures in hearings on her nomination.

The euro fell after the ECB’s announcement, to its lowest level against the dollar since May 2017, according to financial data provider Factset. The currency was down 0.5 percent at $1.0958.

“This was a kitchen sink job” said Neil Wilson, chief markets analyst at “Mario Draghi has done pretty much everything he could do with this one and is leaving the door open for Christine Lagarde to cut further.”

Economic growth in the eurozone has slowed to 0.2 percent in the second quarter from the quarter before and Germany, the largest member of the euro, shrank by 0.1 percent% putting it on the verge of a recession, defined as two straight quarters of declining output.


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