The bank reduced the rate on deposits from commercial banks from a negative 0.2 percent to a negative 0.3 percent.
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Health care and pharmaceutical stocks were also weak, with UnitedHealth Group losing 2.2 percent, Merck 2.3 percent and Celgene 4.4 percent. Investors had been betting against the euro ahead of the announcement, expecting that more central bank stimulus would put pressure on the currency. Persistent low inflation can make it harder for indebted countries in the 19 country eurozone to adjust.
But he was later criticized for raising rates in 2008 and 2011 to pre-empt what turned out to be a phantom threat of inflation, only to be forced to cut them again nearly immediately as the euro zone economy sank into recession. The yield on the 10-year German government bond soared 0.20 percentage points to 0.67 per cent, a massive move in the bond market.
With inflation at just 0.1%, unemployment still over 10% and bank lending disappointing, Draghi has plenty of excuses to ease monetary policy further.
The ECB cut its deposit rate deeper into negative territory and extended its asset buys by six months – widely anticipated moves that some investors considered the bare minimum after the bank had for weeks stoked expectations of stimulus moves.
Draghi said “there was a very large majority in favour of these measures” at the European Central Bank governing council, thus admitting dissensions between governors.
It also revised downwards its medium-term inflation forecasts, to 1% from 1.1% in 2016 and to 1.6% from 1.7% in 2017. The weak figures are expected to give the go-ahead for Draghi to both increase the pace of its trillion-euro asset purchases and cut its deposit rate. He also said the central bank would begin reinvesting the proceeds from principal payments it receives as the securities mature. “It limits President Draghi’s ability to guide markets who will naturally become more suspicious of his power to deliver”.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. Whereas the euro fell against the dollar in January after the ECB’s council meeting (from $1.16 to $1.14), it jumped after today’s (from $1.06 to $1.09) as markets reacted to the smaller-than-expected easing in monetary policy.
The sell-off in the dollar also impacted U.S. Treasuries. That’s the second straight 0.1 percent decline and suggests that a rise in consumer demand earlier in the year may have run its course.
On an annual basis, Eurostat said retail sales were 2.5 percent higher in October, down from September’s rate of 2.9 percent. This boosts economic activity and eventually pushes up prices.
Those trends were confirmed in a survey published Thursday by financial data company Markit, which shows activity across the eurozone manufacturing and services sector grew in November, though price gains remain subdued. Anything above 50 indicates expansion. But it has been negative since June 2014, meaning banks effectively have to pay the ECB to hold their funds.
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His powers of persuading market skeptics were most famously demonstrated in 2012 when he promised to do “what it takes” to shield the euro, instantly quelling speculation that a debt crisis could bring about the collapse of the currency.
