European Central Bank cuts rates

Frances colour

Yesterday the ECB cut its benchmark interest rate to 0.05%, and introduced new stimulus measures.

The ECB had earlier cut its rate from 0.25% to 0.15% in June, and also became the first major central bank to introduce negative interest rates.

It will also launch an asset purchase program, which will buy debt products from banks; with the aim of adding liquidity to the financial system and revive lending.

However the plans fall short of a program of buying government bonds – known as quantitative easing (QE), and one which the US Federal Reserve has undertaken.

Mario Draghi, Head of the ECB, said that QE had been discussed by the bank.

“Some of our governing council members were in favour of doing more than I’ve just presented, and some were in favour of doing less,” he said.

“So our proposal strikes the mid-road…. a broad asset purchase program was discussed, and some governors made clear that they would like to do more.”

The ECB has been under pressure to kick-start the eurozone economy, as manufacturing output has slowed and inflation has fallen to just 0.3%.