The European Central Bank today announced a new controversial stimulus package to sustain the eurozone’s slowing economy.
In a U-turn from its previous decisions, the governing council announced it will cut the deposit rate by 0.1 percentage points to –0.5 percent and it will restart a €20 billion monthly asset purchase program from November.
The rate cut is less than the markets had expected. The interest rate on borrowings will remain unchanged.
Outgoing President Mario Draghi was reportedly the package’s biggest sponsor but faced opposition by Bundesbank President Jens Weidmann, Klaas Knot, the president of the Dutch central bank, and their French counterpart François Villeroy de Galhau.
The policymakers believed the current economic situation did not warrant such a stimulus push, including a restart of unconventional monetary policies known as quantitative easing that pump money into markets through bond purchases.
However, before the announcement, investors and economists predicted Draghi would overcome internal opposition. Olli Rehn, the governor of the central bank of Finland, strengthened the expectations of significant new support measures last month when he said monetary stimulus would have had to be substantial in order to be effective.
Draghi will hold a press conference in Frankfurt later this afternoon.
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