The ECB cut its deposit rate by 0.1 percentage points to -0.3 percent, charging banks more for parking cash with the central bank and said it would announce more easing measures at its 1330 GMT press conference.
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The program, which was due to run at least through September 2016, is now meant to run until March 2017 or beyond if necessary.
Draghi said there are “continued downside risks” to the inflation outlook. The futures contract dropped $1.91, or 4.6 percent, to $39.94 a barrel in NY on Wednesday.
But the euro hit a four-week high of $1.0894, over two percent up on the day, and the pan-European FTSEurofirst 300.FTEU3 fell deeper into negative territory in a sign financial markets had been expecting Draghi to provide more stimulus.
The European Central Bank has cut its projections for inflation, a shift that can justify continuing the bank’s stimulus efforts. The rate in November was stuck at 0.1 percent. The ECB trimmed its forecasts for inflation next year, to 1 percent from 1.1 percent previously, and for 2017 to 1.6 percent from 1.7 percent.
Inflation across the economic bloc is running at about 0.1% annually.
Defending the moves, ECB President Mario Draghi said the market just needed to take time to understand them, adding they could always be adapted.
He said the European Central Bank did not add to its monthly asset purchase program because extending the scheme and reinvesting proceeds were deemed sufficient. The size was not increased.
The bank will also start buying municipal debt but keep its overall asset purchases unchanged, potentially lowering its government bond buys as the new instrument crowds out other assets.
In stock markets, the moves were equally sharp. Many had predicting a cut to minus 0.4 percent.
The central bank has had a negative deposit rate – a policy created to spur investment – since June 2014. Germany’s DAX was down 0.2 percent while the CAC-40 in France was flat.
The currency gained against most of its 16 major counterparts after the 10 basis-point cut to the deposit rate, from minus 0.2 percent.
“[Ms. Yellen] definitely greased the tracks…for a rate increase”, said Chris Gaffney, President at Everbank World Markets. That would help exporters and thus support the modest recovery in the 19 countries that use the euro as their currency.
In comments Wednesday, Fed Chair Janet Yellen gave an upbeat assessment of the economy’s progress since the Fed’s last meeting in October, describing it as in line with its expectations for the labor market and inflation.
However, Craig Erlam, senior market analyst at OANDA, argues the opposite is the case. “The wider expectations were that Draghi is going to come with his guns blazing but today is certainly not the day for that”. He also signaled the Asset Purchase Program could be extended further if the annual rate of inflation isn’t rising quickly enough. Looking at the euro dollar chart, one thing is clearly evident that shorts are getting squeezed out of the market and this why we have such a massive upside move.
Official figures show that retail sales across the eurozone remain sluggish despite the boon offered to consumers by cheap oil and subdued consumer price gains.
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The euro rose sharply against the dollar.
