Though the ECB made it more expensive for commercial banks to park their cash at the central bank by cutting the so-called deposit rate by 0.1 percentage point to minus 0.3 percent, many in the markets expected a cut to minus 0.4 percent.
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Markets were thrown into confusion just before the ECB announcement when the Financial Times published a story online saying the bank had made a decision to keep interest rates unchanged.
The U.S. dollar rose against the Taiwan dollar Thursday, gaining NT$0.032 to close at the day’s high of NT$32.935 in reflection of the weakness of other currencies in the region amid fears over a rate hike by the U.S. Federal Reserve, dealers said.
ECB President Mario Draghi could also announce it is extending its 60 billion euros per month in bond purchases beyond September 2016, or increase the amount purchased every month, or both. Fed Chair Janet Yellen said on Wednesday she was “looking forward” to a USA interest rate rise but an unexpectedly weak manufacturing survey this week has also raised fresh doubts about the Fed’s rate path.
Critics of easing, led by the Governing Council’s two German members, argue that monetary policy is already exceptionally loose and the biggest reason inflation is hovering near zero is the fall in oil prices, which is a boost for growth as lower energy costs leave households with more to spend. The euro is also down 0.5 percent at $1.0555, a further indication that traders think ECB President Mario Draghi will announce a substantive package of stimulus measures. It reduced the projection for 2017 to 1.6 percent from 1.7 percent in September.
The euro surged 2.36% against the dollar to $1.0865 following Draghi’s comments, but by 1418 GMT, the rally dropped pace with €1 changing hands for $1.0799, up 1.73%. He pledged to drive consumer prices back up towards the bank’s annual inflation target of just below 2 percent.
It is therefore a major priority for Draghi and the European Central Bank to provide the stimulus to increase pan-European inflation. In order to encourage lending the ECB even have the power to impose an interest rate of -0.2% on their deposits, with banks effectively being charged by the ECB for handling their reserves. Economists expect the European Central Bank to lower inflation forecasts further.
Avago Technologies AVGO. O shares rose 9.2 percent to $144.45 after the company reported a better-than-expected quarterly profit.
Mr Draghi set the scene for more stimulus in October and reinforced his pledge in a speech two weeks ago when he said officials “will do what we must to raise inflation as quickly as possible” – an echo of his “whatever it takes” intervention in June 2012 to staunch the worst throes of the eurozone crisis.
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Investors were also digesting data released Thursday showing activity in the eurozone’s private sector picked up in November from the previous month.
