ECB Cuts Rates to Fresh Record Low


The ECB lowered its benchmark refinancing rate by 5bps to a fresh record low of 0.0% and increased the asset purchase program by €20 billion to €80 billion a month on March 10th 2016. The deposit facility rate was cut by 10bps to -0.4%, the lending facility was lowered by 5bps to 0.25% and a new series of long-term loans to banks was announced. Policymakers said interest rates are expected to remain at present or lower levels for an extended period of time and cut growth and inflation forecasts.

Excerpts from the Introductory statement to the press conference by Mario Draghi, President:

First, as regards the key ECB interest rates, we decided to lower the interest rate on the main refinancing operations of the Eurosystem by 5 basis points to 0.00% and the rate on the marginal lending facility by 5 basis points to 0.25%. The rate on the deposit facility was lowered by 10 basis points to -0.40%.

Second, we decided to expand the monthly purchases under our asset purchase programme from €60 billion at present to €80 billion. They are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term. To ensure the continued smooth implementation of our asset purchases, we also decided to increase the issuer and issue share limits for the purchases of securities issued by eligible international organisations and multilateral development banks from 33% to 50%.

Third, we decided to include investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area in the list of assets that are eligible for regular purchases under a new corporate sector purchase programme. This will further strengthen the pass-through of our asset purchases to the financing conditions of the real economy. Purchases under the new programme will start towards the end of the second quarter of this year.

Fourth, we decided to launch a new series of four targeted longer-term refinancing operations (TLTRO II), starting in June 2016, each with a maturity of four years. 

Finally, looking ahead, taking into account the current outlook for price stability, the Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.

This outlook is broadly reflected in the March 2016 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.4% in 2016, 1.7% in 2017 and 1.8% in 2018. 

Looking ahead, on the basis of current futures prices for energy, inflation rates are expected to remain at negative levels in the coming months and to pick up later in 2016. Thereafter, supported by our monetary policy measures and the expected economic recovery, inflation rates should recover further. This broad pattern is also reflected in the March 2016 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.1% in 2016, 1.3% in 2017 and 1.6% in 2018. 

ECB | Joana Taborda | joana.taborda@tradingeconomics.com
3/10/2016 4:27:42 PM