Much has been made of the ECBs ability to deliver the much needed bazooka in recent months, particularly after it disappointed so badly in December, but the central bank came out all guns blazing on Thursday, cutting rates across the board and increasing both the size of the quantitative easing program and the list of eligible assets.
The decision to ease monetary policy across a broad range of tools sent a strong message to the markets that it is not willing to sit by while they repeatedly fall well short of their 2% inflation target. Moreover, it seems that policy makers took full advantage of the inability of German Bundesbank Head, and known hawk, Jens Weidmann, to vote against the range of measures.
The markets responded as you’d expect to the announcement, with the euro going into freefall, down almost two cents against the dollar from today’s high. European equities were given a major boost, while yields on eurozone debt fell considerably in response to the increase of asset purchases by 20 billion euros, more than the markets had been expecting.
All things considered, the ECB has well and truly over delivered today. We’re sure to get more details from Mario Draghi in the press conference shortly, during which I would expect the markets to remain quite volatile.
The full list of ECB stimulus measures are as follows:
- Main refinancing rate – 0% from 0.05% (five basis point cut)
- Marginal lensing rate – 0.25% from 0.3% (five basis point cut)
- Deposit rate – -0.4% from -0.3% (10 basis point cut)
- Asset Purchases – €80 billion per month from €60 billion
- Asset Purchases – Investment grade bonds by non-bank corporates will be included in list of assets
- TLTRO II (Targeted longer-term refinancing operations) – New series with four year maturity will be launched starting June 2016