The European Central Bank delivered its biggest stimulus package in years Thursday, cutting a key interest rate and rolling out a massive bond-buying program to stabilize the euro-zone economy, which is being racked by political turmoil and international trade tensions.
The ECB cut its main deposit rate by 10 basis points, to a record low of -0.5 percent, and said it will reactivate its quantitative easing program on Nov. 1, buying 20 billion euros in assets each month for “as long as necessary."
In a news conference, ECB President Mario Draghi said the package is a response to the darkening economic outlook across the continent, but emphasized that countries with purchasing power needed to amp up spending to get things back on track.
“It’s high time for fiscal policy to take charge,” Draghi said.
The package is a sort of bold curtain call for Draghi, who is leaving after his eight-year term ends in October.
“This is Mario Draghi’s final ‘whatever it takes,’ " Carsten Brzeski, chief economist with ING Germany told investors in a note Thursday. “Despite all market excitement now, the question remains whether this will be enough to get growth and inflation back on track as the real elephant in the room is fiscal policy. It is clear that without fiscal stimulus, Draghi’s final stunt will not necessarily lead to a happy end.”
The European benchmark Stoxx 600 index rose 0.6 percent following the announcement, but European bank stocks slumped and the euro was down 0.4 percent against the dollar, implying Draghi’s “bazooka” package still disappointed investors.
President Trump seized on the widely expected stimulus package in a tweet Thursday. “They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”
The president has repeatedly complained about the ECB’s use of negative interest rates to spur growth. On Wednesday, he issued his first call to the Federal Reserve to cut interest rates below zero. But his push for such emergency steps is at odds with his customary boasts about the strength of the U.S. economy.
“The USA should always be paying the lowest rate,” Trump tweeted Wednesday. “No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads.’"
Turkey slashed its interest rate by 3.25 percentage points Thursday, just before the ECB stimulus announcement, joining the growing list of central banks across Europe, Asia and Australia that have lowered interest rates in recent months, with many attributing the need for economic stimulus to the fallout from the U.S.-China trade war. The conflict, which has dragged on for more than a year, is upending global supply chains and significantly dampening trade volumes, causing contractions in powerful, export-driven economies like Germany.
In July, the Fed cut the benchmark interest rate for the first time in more than a decade, lowering it by a quarter-point, to just below 2.25 percent. The last time the Fed cut rates to zero was during the Great Recession, and it has never adopted negative rates. Investors are eagerly awaiting next week’s Fed rate-setting committee meeting to see whether the central bank will bow to the president’s demands and cut rates again.
Draghi brushed off Trump’s tweets Thursday during the news conference.
“We have a mandate,” Draghi said. “We pursue price stability, and we don’t target exchange rates. Period.”
