European Central Bank (ECB) Cuts Rates and Pours More Money into Financial Markets…(The Titantic…)
By Nick Beams
Global Research
March 13, 2016
The European Central Bank (ECB) yesterday unleashed a new series of measures under its quantitative easing program, including expanded purchases of financial assets, a further lowering of interest rates and increased financing for banks. The moves amount to an increasingly desperate bid to counter the worsening outlook for the euro zone and the global economy.
The ECB reduced its deposit rate to minus 0.4 percent from minus 0.3 percent and increased its purchases of financial assets from the present level of €60 billion per month to €80 billion and included for the first time the purchase of debt issued by non-financial corporations. Previously the program, which is set to run to March 2017 or beyond if considered necessary, had only included government debt.
It also decided to extend further credit to banks under its so-called longer-term refinancing operations, charging them interest rates as low as minus 0.4 percent—in effect paying them to borrow money.
However, the immediate effect of the measures was the opposite of what was intended. European markets initially rose on the news because the expansion of the asset-purchasing program by €20 billion was larger than had been expected, but then ended the day sharply down. The euro at first fell against the dollar but then rose rapidly in one of the largest one-day swings in the currency’s history. On Wall Street the Dow fell by as much as 178 points before rising to finish the day just 5 points down.
The cause of the gyrations in the currency and equity markets appears to have been remarks by ECB president Mario Draghi that there would be no further interest rate cuts. He said that while interest rates will “stay low, very low, for a long period of time … we don’t anticipate that it will be necessary to reduce rates further.”
He indicated the central bank could not go negative as far as it wanted without any consequences for the banking system. Since the move by the Bank of Japan to negatives rates at the end of January and the spread of the negative-rate regime to countries comprising around a quarter of global gross domestic product, there has been considerable concern that it has having an adverse impact on the business models of banks, leading to significant falls in their share values.
In his prepared remarks Draghi gave a downbeat assessment of the euro zone economy. Real GDP growth was 0.3 percent for the fourth quarter in 2015. While it was supported by domestic demand, it was “dampened by a negative contribution from net exports” with the most recent surveys pointing to “weaker than expected growth momentum at the beginning of the year.”
The Rest…HERE
