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ECB announces stimulus, cuts deposit rate

ECB announces stimulus, cuts deposit rate

The European Central Bank announced a new stimulus package to bolster growth in the euro area economy, while decided to slash the deposit rate to encourage lending to consumers and businesses.

The ECB will restart its bond purchases on November by buying 20 billion euros each month, while cut the deposit rate to -0.5 percent from -0.4 percent.

“Reinvestments of the principal payments from maturing securities purchased under the APP will continue, in full, for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates,” the ECB statement said.

Also, the ECB will introduce a new “two-tiered” system, under which some banks’ holdings are exempt from the negative deposit facility rate.

However, the central bank opted to hold the benchmark interest rate at zero – instead of cutting it to negative territories.

“The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon,” according to the ECB statement. “Such convergence has been consistently reflected in underlying inflation dynamics.”

As of 12:07 GMT, the euro plunged near one-week low at $1.0954, erasing its earlier gains when it set a peak at $1.1068.

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