ECB Acts Aggressively With Monetary Easing; Euro Tumbles, European Stocks Rally

The euro is tumbling against a host of other currencies and European equities are rallying after the ECB decided to act aggressively with its monetary policy and offer several easing measures intended to boost growth in the 19 member euro currency area.

The euro dropped to the lowest level in 6 weeks against the dollar and touched 1.0824 before bouncing higher.

As expected, the ECB cut its interest rate on the deposit facility by 10 basis to -0.40 percent, effective March 16 2016. The main refinancing operations decreased by 5 basis points to 0.00 percent and the interest rate on the marginal lending facility decreased by 5 basis points to 0.25 percent.

The monthly purchases under its quantitative easing asset purchase program expanded to €80 billion starting in April.

Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area were included in the list of assets that are eligible for regular purchases.

Lastly, the ECB is providing a new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years launched in June 2016 with an interest rate in these operations as low as the interest rate on the deposit facility.

Lowering Growth Estimates

The ECB lowered it annual 2016 GDP forecast to 1.4 percent, down from 1.7 percent in December.

In 2017 GDP is forecast to rise to 1.7 percent and slowly increase to 1.8 percent in 2018.

The ECB’s inflation 2016 forecast was cut to near zero at 0.1 percent.

Draghi said in press conference that inflation will probably remain negative for the next few months before recovering later in the year.

“Rates will stay low, very low, for a long period of time”, said ECB President Mario Draghi.

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