European Central Bank cuts interest rate and expands QE

The European Central Bank has cut interest rates to zero and expanded its quantitative easing programme as it redoubles efforts to stimulate the sluggish European economy.

Along with the benchmark interest rate, lowered from 0.05% to 0%, the Bank cut the deposit rate facility to -0.4%, meaning it will cost banks to hold cash rather than lend it out to customers.

The ECB has decided to boost its quantitative easting programme by €20 billion, to €80 billon per month starting in April.

Analysts viewed the measures as a shot to the arm of the European economy, with lower interest rates to stimulate borrowing and charges on banks keeping money in their vaults.

Here are the full details of latest measures announced by the Monetary Policy Committee of the ECB:

(1) The interest rate on the main refinancing operations of the Eurosystem will be decreased by 5 basis points to 0.00%, starting from 16 March 2016.

(2) The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25%, with effect from 16 March 2016.

(3) The interest rate on the deposit facility will be decreased by 10 basis points to -0.40%, with effect from 16 March 2016.

(4) The monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April.

(5) Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases.

(6) A new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years, will be launched, starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.