ECB moves to cut key interest rate again

The European Central Bank cut a key interest rate yesterday and announced an extension of its monthly asset purchases but the euro leapt higher as financial markets signalled they had been expecting yet more stimulus.

Delving deeper into the bank’s monetary toolbox, ECB chief Mario Draghi said the bank would not only include euro-denominated regional and local debt in its purchases but would also look to reinvest principal payments in the scheme.

“This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance,” Draghi said, without saying how much that could add to overall purchases currently hitting 60 billion euros a month.

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He said the ECB did not add to its monthly asset purchase programme because extending the scheme and reinvesting proceeds were deemed sufficient.

Draghi said the quantitative easing asset-buying programme would continue “until the end of March 2017 or beyond if necessary”, he added, spelling out that the central bank’s priority of hitting a medium-term target of inflation at just under two per cent.

Earlier the bank cut its deposit rate to -0.3 per cent from its existing -0.2 per cent, effectively charging banks more for parking cash with the central bank, reversing its earlier guidance that rates had bottomed out.