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European Central Bank cutting its benchmark interest to 0%

Posted: 11th March 2016 by katinahristova
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As a part of its plan to revitalise the slow Eurozone economy, The European Central Bank has revealed that it is surprisingly cutting its benchmark interest rate from 0.5% to 0%. In addition, the bank has also come to the decision to increase its quantitative easing programme to €80 billion (up by €20 billion) a month starting in April. Another surprise has come from the -0.4% (down from -0.3%) cut deposit rate, which will result in banks having to pay more to hold cash, rather than lending it to customers. Corporate bonds and government debt will be now purchased as a part of the scheme. Analysts have expressed beliefs that the package of measures, specifically the lower interest rates, is expected to stimulate borrowing and charges on banks keeping money in their vaults.

In addition to these changes, the euro has fallen 1% against the US dollar to $1.0863 and has shed 0.5% against British sterling, the yen and the Swiss franc.

Head of currency strategy at Saxo Bank, John Hardy has expressed his thoughts on the ECB’s surprising move: "This was a much bigger bazooka than the market was expecting and shows the ECB trying to get ahead of the confidence curve after learning its lesson in December." According to specialists the weaker euro guarantees cheaper European experts and European stock markets’ fall bolstered with Frankfurt jumping 2.2% and Paris climbing 2.5%. With Deutsche Bank up 4.5%, Societe Generale adding 5.3% and UniCredit rising 6.8%, it is evident that shares in European banks have also risen abruptly.

 

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