The European Central Bank on Thursday opted for aggressive measures to respond to the clouds looming over the European economy. The Frankfurt-based body announced that it will reduce its deposit rate to a record low of -0.5 percent from the -0.4% percent and will resume the purchase of 20 billion euros of bonds per month from November 1.
In addition, the ECB has revised down its 2019 growth forecast for the euro zone by one tenth of a percent from the 1.2 percent forecast in June to 1.1 percent. The central lender has also lowered its growth forecast for 2020 by two tenths, from 1.4 percent projected in June to 1.2 percent, but maintains its growth estimate for 2021 of 1.4 percent.
The ECB also expects inflation to be 1.2 percent this year, compared to 1.3 percent forecast in June, far below its 2 percent target. The statement issued at the end of today’s meeting makes it clear that rates will continue at around zero percent or lower until inflation approaches that goal.
“The information we have points to a more prolonged weakness of the euro zone economy, the persistence of downside risks and stable inflationary pressure,” ECB President Mario Draghi told a news conference. “This is reflected in the new projections of the ECB staff, which show a drop in inflation outlook,” he added.
Draghi referred to a statement he made in June that he stood “ready to use all the instruments in the toolbox” to avert a downturn, saying “today was the day”.
Draghi, who presided over his penultimate meeting on Thursday before current IMF President Christine Lagarde takes over as head of the ECB, urged governments that still have fiscal space to act to underpin the economy of the euro zone. “Governments with fiscal space must act in a timely and effective manner,” since monetary policy is not enough, the banker said.