European Central Bank Cuts Interest Rates, Will Resume Buying Bonds

With a slowdown taking hold and Brexit continuing to cause uncertainty, The European Central Bank (ECB) has launched a new stimulus package that includes lower interest rates and bond purchases aimed at boosting eurozone growth.

The ECB cut its deposit rate to a record low -0.5% from -0.4% and announced that it will restart bond purchases of 20 billion euros a month beginning in November. With inflation falling, Germany narrowly avoiding a recession and a global trade war sapping domestic confidence, the ECB had all but promised more support to Europe and the only question was how extensive the new stimulus package would be.

"The Governing Council expects (bond purchases) to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates," the ECB said in a regular policy statement.

The ECB also eased the terms of its long-term loans to banks and introduced a tiered deposit rate to help banks. Economists polled by Reuters had expected a 10-basis point deposit rate cut, a tiered deposit rate to support banks, bond buys of 30 billion euros a month starting in October and a fresh promise to keep rates low for the foreseeable future.

"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, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics," the ECB said in its statement.