European Central Bank lowers deposit rate to minus 0.5 percent

Image of ECB interest rates

Its dovish stance comes after Germany was pushed to the brink of a recession by the intensifying US-China trade war. In a wide-ranging package of measures that will ensure outgoing President Mario Draghi leaves his mark on ECB policies long after he departs next month, the bank cut one key interest rate further below zero.

The deposit facility rate, paid by banks on reserves parked at the ECB, was already negative, but has now been cut from minus 0.4% to minus 0.5%.

ECB policymakers met at the bank's headquarters in Frankfurt on Thursday.

Factory output has slumped in response to diminishing global trade volumes as Washington and Beijing impose punitive tariffs on each other's goods, while business investment has fallen against the uncertain political backdrop.

United States Treasury Secretary Steve Mnuchin told CNBC the European Central Bank rates change came as no surprise to Washington.

Unveiling the stimulus package to avert a deeper slowdown, Draghi said: "The package is quite powerful, both in the short term but also in the long run".

The ECB said: "The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, two percent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics".

Trump took the move as a cue to lash out at the US Federal Reserve on Twitter. While the European Central Bank has a target for inflation of below, but close to, 2% over the medium term, inflation has remained muted amid weaker economic growth.

In a scathing tweet this afternoon, Mr Trump wrote: "European Central Bank, acting quickly, Cuts Rates 10 Basis Points". "President Trump tweeted: "[The ECB] is trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting US exports". In fact, with an interest rate of -0.5%, the Euro will continue to struggle against most currencies although it is possible that perhaps some of the selling will update right around this big figure and cause a bit of a bounce. It will also encourage more lending along with increasing the overall money supply for eurozone countries.

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