ECB cuts deposit rate by 10 bps, extends QE until Mar 2017

Moneycontrol BureauWith the European Union continuing to reel under chronic conditions of low inflation and high unemployment, the European Central Bank (ECB) today cut interest rate on deposit facility by 10 basis points to -0.30 percent.It left the benchmark refinancing rate and interest rate on marginal lending rate unchanged at 0.05 percent and 0.30 percent, respectively.The central bank, led by Mario Draghi, further announced that it would extended its asset purchase programme until March 2017 and at least till a "sustained upward adjustment in inflation" materialises."The low inflation rate reflects sizeable economic slack," Draghi said at a press conference. "It shows that risks to the economic outlook are on the downside."The euro, however, jumped soon after the news versus the US dollar as the policy measures announced appeared to be lower than what the market was expecting. Some analysts had expected the ECB to increase the quantum of its monthly bond-buying programme. Stocks across the region nosedived after the announcement.Draghi said that the central bank sees consumer price index rising towards the end of the year and through to 2016 and 2017 (from an expected print of 0.1 percent this year to 1 percent in 2016 and 1.6 percent in 2017).The ECB's long term inflation target is at 2 percent.He added that GDP growth in 2015 through to 2017 is seen at 1.5 percent, 1.7 percent and 1.9 percent, respectively.The market selloff could be attributed to the fact that the market had expected Draghi to be more dovish, Manish Singh of London-based Crossbridge Capital told CNBC-TV18.The market's reactions "reflects the positioning [of investors]. There has not been any expansion in terms of size [of the bond-buying programme]," he said."The market's position was very much being short euro-dollar and expecting a big increase in QE -- to the extent some were saying Mario Draghi will be completely dovish. But the opposite happened," Singh added.The ECB's decision comes some days ahead of the US Federal Reserve's crucial meeting, at which it is expected by many to raise interest rates for the first time in nine years."I do not think Janet Yellen is going to disappoint the market," Singh said, adding that a Fed rate hike will reverse any gains that the euro is making versus the US dollar, thanks to today's news.The ECB's decision comes some days ahead of the US Federal Reserve's crucial meeting, at which it is expected by many to raise interest rates for the first time in nine years."I do not think Janet Yellen is going to disappoint the market," Singh said, adding that a Fed rate hike will reverse any gains that the euro is making versus the US dollar, thanks to today's news.He also maintained that he does not expect a Fed rate hike to have an adverse impact on emerging market equities, and said that he expects the ECB to continue to stay in easing mode.