Market Jumps on ECB Rate Cut

The stock market is up about 0.5% this morning on the news that the European Central Bank is cutting interest rates. The ECB is also stepping up its bond buying.

In a change to its usual communication practices, the ECB announced all of its measures at its rate call, rather than waiting for Mr. Draghi’s news conference.

It cut the level it charges on excess deposits by 0.1 percentage point to minus 0.4%. This means that banks have to pay even more now to leave excess funds with the central bank overnight. It also cut its main interest rate, the rate it charges on regular bank loans, to an all-time low of zero percent from 0.05% where it was previously.

The ECB said Thursday that it would up the monthly volume of its bond buying program to €80 billion ($87 billion), from €60 billion previously.

It also decided to add investment-grade euro-denominated bonds issued by nonbank firms established in the euro area to the list of eligible assets that it can buy.

“This is an extremely aggressive signal, since it shows that the ECB is willing to take on potentially significant credit risk in order to fulfill its mandate to raise inflation to its target,” said Bill Adams, an economist at PNC Financial Services Group.

The euro initially dropped then surged.

Posted by Eddy Elfenbein on March 10th, 2016 at 10:25 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.