ECB Unveils QE After Rate Cut To Tackle Low Inflation, Weak Growth

(RTTNews) - The European Central Bank on Thursday announced further stimulus along with a reduction to interest rates to further boost credit in the euro area economy where inflation is low and growth remains sluggish.

"The Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities with underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase programme," ECB President Mario Draghi said during his customary post-decision press conference in Frankfurt.

"In parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by MFIs domiciled in the euro area under a new covered bond purchase programme."

Both measures will begin in October and details will be announced after the Governing Council meeting on October 2.

"The newly decided measures, together with the targeted longer-term refinancing operations which will be conducted in two weeks, will have a sizeable impact on our balance sheet," Draghi said.

The Governing Council was not unanimous on deciding the latest stimulus measures, Draghi suggested while answering queries from the press.

Some economists were indeed expecting an announcement on ABS purchases and Draghi said the central bank had started the preparatory work on the same since June.

Earlier today, the central bank reduced its three main interest rates by 10 basis points in a surprise move. Previously, rates were cut in June.

The refinancing rate was lowered to a record low 0.05 percent from 0.15 percent, the deposit rate to -0.20 percent from -0.10 percent and the marginal lending rate to 0.30 percent from 0.40 percent.

The central bank also reduced the growth and inflation forecasts for euro area for this year.

The growth forecast for this year was cut to 0.9 percent from 1 percent predicted in June, according to the September ECB Staff projections. The outlook for 2015 was lowered to 1.6 percent from 1.7 percent. However, the projection for 2016 was raised to 1.8 percent from 1.8 percent.

The risks to the growth outlook are on the downside, the bank said. Eurozone growth may have lost momentum in the third quarter, but a modest expansion is likely, the ECB Chief said citing available survey data.

The inflation outlook for 2014 was cut to 0.6 percent from 0.7 percent. The inflation projections for 2015 and 2016 were retained at 1.1 percent and 1.4 percent, respectively.

"The Governing Council...will continue to closely monitor the risks to the outlook for price developments over the medium term," ECB President Mario Draghi said.

"We will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate developments and the pass-through of our monetary policy measures."