Moneycontrol Bureau
In a bid to tackle the slowdown in Eurozone, the European Central Bank (ECB) on Thursday cut interest rates to a fresh record low. The central bank has cut benchmark interest rate to 0.05 percent from 0.15 percent and marginal lending rate to 0.3 percent, while deposit rates have been slashed to -0.2 percent from -0.1 percent.
The euro zone flatlined in the second quarter of the year and the Ukraine crisis is now weighing heavily on business confidence.
"The Governing Council sees the risks surrounding the economic outlook for the euro area on the downside," ECB President Mario Draghi told a news conference.
"In particular, the loss in economic momentum may dampen private investment, and heightened geopolitical risks could have a further negative impact on business and consumer confidence," he added.
New ECB economic forecasts predicted slower growth this year, of just 0.9 percent, picking up to 1.6 percent in 2015. The forecast for inflation, now at 0.3 percent, was cut to 0.6 percent, rising to 1.1 percent in 2015, still way below the ECB’s target of close to but below 2 percent.
Draghi said if inflation looked like staying too low for too long, the ECB Governing Council was unanimous in its commitment to using other "unconventional instruments”.
He added that Thursday's decisions were not supported unanimously by his colleagues although there was a "comfortable majority".
Draghi also announced purchase of asset-backed securities and covered bonds to help ease credit conditions. A Reuters report indicate the amount could be 500 billion euros (USD 650 billion) over three years. The ECB’s interventions in these programs will begin in October 2014.
In an earlier interview to CNBC-TV18, Manish Singh, Chief Strategist & Head of Investments at Crossbridge Capital, said that he had expected Draghi to be under a lot of pressure to come up with additional stimulus measures.
“I do not think asset-backed securities (ABS) purchase alone is going to be enough and that is primarily because of the size of the SME ABS market that he has talked about,” Singh said. (With inputs from Reuters)
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