ECB cuts rates and boosts QE by €20bn

Mario-Draghi-700x450.jpgThe European Central Bank has cut interest rates and expanded its asset purchase programme, exceeding market expectations.

At the hotly-anticipated meeting, the ECB announced a 10 basis point cut to the deposit facility, effective from 16 March. The rate is in negative territory, at -0.4 per cent. It also cut the benchmark rate by 5 basis points to 0 per cent.

The ECB expanded its asset purchase programme by €20bn to €80bn, starting from April.

As part of the extensions the ECB will now include non-bank corporate bonds in the asset purchase programme.

Also announced at the meeting, the ECB has released a new series of four targeted longer-term refinancing operations, each with a maturity of four years. These will be launched in June.

The cut to the deposit rate was broadly in line with market expectations, although fell short of some who thought a 20 basis point cut would be made.

However, the overall package of returns is more than most were expecting.

Ahead of the meeting, a survey of brokers by M&G Investments found that just Morgan Stanley and Credit Suisse were expecting a €20bn extension to QE.

The announcement comes as commentators warned that Mario Draghi risked disappointing the market and damaging his reputation if the changes to monetary policy today underwhelmed market expectations.

Initial market reactions saw the euro fall by 1.1 per cent against the dollar to drop below $1.09, and by 1.1 per cent against Sterling.

Draghi will hold a conference on the policy decision shortly.