The ECB has little to show for the 700 billion euros it has spent buying government bonds and other assets in the past year, as tumbling raw materials prices blunt the impact of its quantitative easing.
That raises the risk that people will lose faith in the bank’s commitment to its mandate. Inflation has been below the ECB’s nearly 2 percent target for three years and is likely to remain so for many more.
The ECB cuts its deposit rate to -0.4 percent from -0.3 percent, in line with expectations, but it also surprised markets by cutting its other two interest rates.
As well as the refinancing rate, which means banks can now borrow at its weekly auctions at no cost, it cut the marginal lending rate, used by banks to borrow from the ECB overnight, to 0.25 percent from 0.3 percent.
Attention now turns to ECB President Mario Draghi’s 1330 GMT press conference, where he will comment on the decisions and unveil the bank’s fresh inflation and growth forecasts.
Although inflation expectations have fallen sharply in recent months on lower crude oil prices, Europe’s growth prospects have held up relatively well as domestic consumption is proving resilient to a slowdown in emerging markets.
Weak business and industrial sentiment indicators have however suggested that Europe is facing increasing headwinds, particularly from slowing growth in China.
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