The European Central Bank announced a surprise package of measures to expand stimulus, including interest-rate cuts, more bond purchases and providing new loans to banks, aiming to bolster the weak European economy.
The 25-member Governing Council announced on Thursday to cut interest rate by 10 basis points to minus 0.4 percent and lower its main refinancing rate by 5 points to 0.0 percent.
"While very low or even negative inflation rates are unavoidable over the next few months as a result of movement in oil prices, it is crucial to avoid second-round effects," Draghi said in his regular media conference after the ECB statement.
Another step the ECB took is to extend the bond purchases. Monthly bond purchases were increased to 80 billion euros ($87 billion) from 60 billion euros. The ECB also said that corporate bonds would now be eligible for the bond purchases program. These purchases will begin towards end of the first half of 2016.
The ECB also announced a new series of cheap long-term loans to banks that will begin in June.
Mario Draghi, the bank’s president, said the outlook for growth has been revised down, reflecting weakening global prospects. 2016 GDP growth in the euro zone had been revised down to 1.4 percent from the 1.7 percent forecast in December. Inflation forecast for 2016 slashed to 0.1 percent from 1 percent.
“The Governing Council expects key interest rates to remain at present or lower levels for long period of time and well past the horizon of our net asset purchases,” Draghi said. Based on the current view, “we don’t anticipate it will be necessary to reduce rates further.”
This aggressive stimulus may help bolster economy and boost inflation in the short term. But no one knows the effect of remaining the negative interest rate for a long time.