ECB cuts repo rate to 0%, expands asset buys in new monetary push

11 March 2016

The European Central Bank today announced an across-the-board reduction in interest rates even as it expanded its asset-buying programme, aiming to release more money into the system in a bid to boost sagging European economies.

The ECB cut its main refinancing rate to zero from 0.05 per cent, which pushed down the euro by around 1 per cent against the dollar.

The European Central Bank also increased its monthly asset buys to 80 billion from 60 billion.

The zero refinancing rate will bring deposit rate deeper into negative territory, charging banks more for parking their cash, which in turn is expected to spur lending and consequently more economic activity.

At today's meeting the governing council of the ECB took the following monetary policy decisions:

  • The interest rate on the main refinancing operations of the Eurosystem will be decreased by 5 basis points to 0.00 per cent, starting from the operation to be settled on 16 March 2016.
  • The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25 per cent, with effect from 16 March 2016.
  • The interest rate on the deposit facility will be decreased by 10 basis points to 0.40 per cent, with effect from 16 March 2016.
  • The monthly purchases under the asset purchase programme will be expanded to 80 billion starting in April.
  • Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases.
  • A new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years, will be launched, starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.

These measures are expected to boost lending, consumption and inflation, the ECB said adding that it would also start buying corporate debt and would also launch four new rounds of cheap loan packages, to be extended by banks to the real economy.

The ECB has spent 700 billion buying government bonds and other assets in the past year, as tumbling raw materials prices blunt the impact of its quantitative easing.

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