European Central Bank Resumes Quantitative Easing In Bid To Boost Ailing Eurozone Economy

Topline: Outgoing European Central Bank (ECB) president Mario Draghi has announced it will restart its quantitative easing measures and has cut its bank deposit rate to an all-time low of -0.5% in a bid to stimulate the flagging eurozone economy.

• The ECB will resume buying up eurozone government bonds at a rate of €20 billion as from November, “for as long as necessary,” it said. The quantitative easing could encourage those governments to borrow more money to invest in national projects.
• The eurozone’s central bank lowered rates for banks depositing their money by 10 basis points, after leaving the already record low rate of -0.4% unchanged in July. The changes are in line with economists’ predictions and are intended to boost inflation, currently running at 1%, closer to its 2% target.
• Deeper negative interest rates will cut even more into the profitability of European banks. But the ECB announced a “two-tier” scheme in which some banks’ holdings will be exempt.
• Draghi also urged Germany, which is on the brink of recession, to take "timely and effective" fiscal action, i.e. up government spending.

Crucial quote: The ECB said in a statement: “The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”

Key background: Draghi, billed by some as the savior of the euro currency, has also faced criticism for the unconventional monetary policies he used to shepherd the eurozone through a recession and debt crisis in his eight years leading the Frankfurt-based central bank.

Eurozone inflation is running at just 1% and with just 1.1% year-over-year growth in the second quarter while the 19 country monetary bloc faces significant headwinds from the U.S-China trade war, Brexit uncertainty and signs that the German’s economy, Europe’s largest, is heading for recession.

Former IMF Chairwoman Christine Lagarde will take over from Draghi from November 1.

Tangent: President Donald Trump fired back on Twitter following a rant on Wednesday where he called for the “boneheads” at the Federal Reserve to cut interest rates to zero “or less” to refinance U.S. debt. The Fed believes its current 2.25% rate is right given the strength of the U.S. economy.

In response to the tweet, Draghi told reporters: “We have a mandate. We pursue price stability and we don’t target exchange rates. Period.”