European Central Bank (ECB) cuts main interest rates

Economic Recap and Forecast 29/02/2016
March 1, 2016
Referendum June 23
June 20, 2016

European Central Bank (ECB) cuts main interest rates

The European markets have been waiting for the ECB (European Central Bank) decisions, hoping that Mario Draghi go through with the promise of applying greater expansive measures, as a reduction in the rate applied to financial institutions on capital deposited in the ECB, from the current -0.30% to -0.40%. It aimed to encourage giving out more loans and credit as well as an extension of the purchase amount of monthly debt which is 60,000 million Euros per month, bringing it to 80,000 million in order to manage more liquidity in the market, that means, more money provide to banks and include the purchase of corporate bonds.

Finally, the European Central Bank (ECB) has announced its version of exchange rates, which are as follows: the reference interest rate in the Eurozone becomes 0%, from the previous 0.05%. There is also a 10 basis points cut from the interest rate applied to the deposit facility, which will become -0.40% from the current -0.30%, an unusual move intended to encourage banks to lend rather than storing reserves; there is also an extension from 60,000 to 80,000 million of the volume of monthly debt that is possible buy starting from April.

The data announced doesn’t escape from the expected reality; the ECB presumes that the overall price level is going to be widely held below the 2% target over the next two years. According to his calculations, the general price level of the Eurozone will rebound a slight 0.1% this year, 1.3% in 2017 and 1.6% in 2018.

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