European Central Bank's stimulus package fails to revive financial markets

By Jess Shanahan

In an effort to revive financial markets the European Central Bank (ECB) cut interest rates from 0.05 percent to 0. However, the region’s stock markets only enjoyed a brief bounce as ECB’s Chief Mario Draghi played down the possibility of further cuts to interest rates.

At a news conference when the stimulus package was announced Draghi said: “From today’s perspective and taking into account the support of our measures to growth and inflation, we don’t anticipate that it will be necessary to reduce rates further. Of course, new facts can change the situation and the outlook.”

Investors seem unconvinced by these measures as the stock market closed sharply down after the package was announced.

As part of this bold move from the ECB, there will also be a reduction in the interest rate on deposits held by banks at the ECB to minus 0.4 percent, from minus 0.3 percent. This encourages banks to lend rather than holding money in the central bank.

More lending would promote growth and put more money into the economy. The rate cut and the other measures to expand stimulus underline how far the ECB sees itself from achieving its goal of inflation of just under 2 percent.

Low or negative inflation has raised fears that Europe may become stuck in deflation, in which stagnant prices weigh on wages, investment and economic growth for years.

Follow @BizReviewEurope

Share

Featured Articles

Abu Dhabi Airports prepares for Terminal A opening

A decade in the making, Abu Dhabi International Airport welcomes 6,000 volunteers to test operational readiness of stunning new Terminal A building

Business Chief expands portfolio with new look and coverage

Business Chief Middle East & Africa launches with fresh new look and extended coverage of the region, with exclusive executive interviews and insights

How Octopus Energy grew to become an industry giant

Octopus Energy continues to grow after a deal was agreed to acquire Shell Energy in the UK and Germany, taking its customer base to almost seven million

Perkbox CEO: How to support employees through tough times

Human Capital

How Middle East is embracing the future of digital finance

Corporate Finance

UAE Lulu Group shifts business for global growth and IPO

Corporate Finance