GDP growth is now expected to hit 1.9% in 2017, better than the 1.8% previously forecast. The outlook for 2017 was cut to 1.7 percent.
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Inflation across the economic bloc is running at about 0.1% annually.
Low inflation can help consumers by making their euros go farther.
Draghi’s repeated assertions have made Thursday’s ECB action a “done deal” for investors who are now speculating the different steps the bank will announce.
“The main reason why the European Central Bank sees a need to signal more easing, even though it is not even halfway through its ongoing quantitative easing programme, is that it wishes to prevent euro appreciation”, SEB said in a note. Or perhaps the European Central Bank will make up for any disappointment on the rate cut with a bigger QE expansion.
In theory, that increases the amount of credit available to businesses.
The ECB wants to raise annual inflation toward its goal of just under 2 percent.
Low inflation is a sign of continuing economic weakness and makes it harder for indebted eurozone countries such as Greece to recover and reduce their debt burdens.
The bank said it is reducing the interest rate on deposits from commercial banks from minus 0.2 percent to minus 0.3 percent. Hong Kong’s Hang Seng slipped 0.3 percent to 22,417.01 while the Shanghai Composite gained 1.4 percent to 3,584.82. Additionally, ECB President Mario Draghi said the bank would extend it bond purchases until at least the end of March 2017.
“The ECB will likely emphasise that, on its new projections, it does not expect headline inflation to reach its target before mid-2018. The rate cut shows the ECB’s determination to further weaken the euro exchange rate and thereby supporting economic growth through exports”, the expert added. Money market rates rose. Having spent most of the day higher, European stock markets plunged.
However, Craig Erlam, senior market analyst at OANDA, argues the opposite is the case.
“The markets were very ambitious with respect to the measures the ECB would possibly take and are now disappointed”, said Stephan Rieke, senior economist at German private bank BHF-Bank. The Stoxx Europe 600 Index has jumped nearly 6 percent since the October meeting.
Currency speculators cut their bets in favour of the dollar slightly, according to the latest data from the Commodities Futures Trading Commission, while bets against the euro have just eased off their highest since August. Though the program has been extended, which will increase the size of the overall stimulus from the previous 1.1 trillion euros ($1.2 trillion), the monthly cap of 60 billion euros in purchases was maintained.
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Promising to do what it must to boost inflation “as quickly as possible”, the bank has all but committed to action, leaving investors guessing only what measures it would pick from an exceptionally long and sometimes contentious list.
