ECB fires off volley of shots in eurozone anti-deflation fight

The European Central Bank fired off a new volley of shots in its ongoing battle to avert deflation in the euro area and jumpstart economic recovery in the region.

The ECB slashed already record-low interest rates, prepared to pump massive new sums into the banking system and, for the first time, said it would start buying corporate bonds.

The unprecedented scale of the ECB's action took financial markets by surprise, sparking a dramatic rise in eurozone stock markets and sending the euro lower against the dollar.

"The central bank came out all guns blazing, cutting rates across the board and increasing both the size of the quantitative easing programme and the list of eligible assets," said Craig Erlam, senior market analyst at Oanda.

The ECB lowered the main rate at which it lends to commercial banks -- the so-called refi rate -- to zero for the first time ever from 0.05 percent.

It pushed the interest rate on its deposit facility for commercial banks to -0.40 percent from -0.30 percent. This means commercial banks in fact pay the ECB if they choose to transfer their excess funds at the end of the day.

The rate on its marginal lending facility, by which the ECB offers overnight credit to banks, is going down to 0.25 percent from 0.30 percent.

The ECB also announced it would expand the volume of bonds it purchases each month under its programme of quantitative easing to 80 billion euros from 60 billion euros. And it would also start buying corporate bonds under the QE programme.

Finally, the central bank said it would roll out another new large cheap loan facility for banks, called TLTRO, to help pump liquidity into the financial system.

At his traditional post-meeting press conference to explain the decisions, president Mario Draghi pointed to a new downward revision of the bank's own growth and inflation forecasts to justify the moves.