The Governing Council of the European Central Bank has cut the interest rate on the main refinancing operations of the Eurosystem by 5 basis points to 0.00%, starting from March 16. The interest rate on the marginal lending facility is being decreased by 5 basis points to 0.25%, while the interest rate on the deposit facility is being cut by 10 basis points to -0.40%.

The ECB has also decided that the monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April. In addition, 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.

The impact for consumers of the ECB's moves will be lower repayments for holders of tracker mortgages and lower interest rates paid on deposits.

ECB president Mario Draghi (pictured) noted that euro area real GDP growth was 0.3%, quarter on quarter, in the fourth quarter of 2015, supported by domestic demand, while being dampened by a negative contribution from net exports.

“The most recent survey data point to weaker than expected growth momentum at the beginning of this year and looking ahead we expect the economic recovery to proceed at a moderate pace,” said Draghi.

In Association with

“However, the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.”

The ECB is projecting annual real GDP growth of 1.4% in 2016, 1.7% in 2017 and 1.8% in 2018.

Draghi added: “The risks to the euro area growth outlook remain tilted to the downside. They relate in particular to the heightened uncertainties regarding developments in the global economy, as well as to broader geopolitical risks.”

Euro area annual HICP inflation was -0.2% in February 2016, compared with 0.3% in January. The ECB expects inflation rates are expected to remain at negative levels in the coming months and to pick up later in 2016.

According to Draghi, annual rate of change of business loans increased to 0.6% in January 2016, up from 0.1% in December 2015. The annual growth rate of loans to households remained stable at 1.4% in January 2016. “Overall, the monetary policy measures in place since June 2014 have clearly improved borrowing conditions for firms and households, as well as credit flows across the euro area,” he claimed.

Socialist Welfare 

Commentator and author David Stockman observed: “Mario Draghi is totally deranged, and so is the entire eurozone policy apparatus. Like much of officialdom elsewhere in the world, the ECB is attempting to fight low growth and low inflation with monetary nitroglycerin. It’s only a matter of time before they blow the whole financial works sky high.”

In Stockman’s view, the growth problem in Europe is due to too much socialist welfare and too much statist taxation and regulation, not too little private borrowing.

“It is damn obvious that low inflation is not a problem, and that in any event it is not caused by lack of money printing and insufficient interest rate repression by the goofballs assembled at the ECB’s swell new headquarters in Frankfurt. The eurozone’s respite from its normal 1-2% annual dose of headline inflation is entirely imported via the global tide of plunging oil, commodities, steel and other industrial prices.

“That welcome tide of imported deflation, in turn, is actually improving the eurozone’s terms of trade and raising consumer living standards, and it is not remotely connected to anything the ECB has done or not done in the last year or even four years.”

Stockman added:  “Global deflation is actually a boon to eurozone workers and consumers because Europe is a giant energy and materials importer. Do the Keynesian madmen at the ECB really think that the hundred million or so eurozone households living essentially hand-to-mouth on stagnant wages and welfare will actually stop buying food, clothing, shelter, shoes, movie tickets, bedroom furniture and backyard garden tools because they are waiting for prices to go down?

“In a world of peak debt and stagnant wages, the idea of a deflationary buyers' strike is just self-serving bureaucratic jabberwocky. It can now be well and truly said that the ECB and other central bankers are so far down the rabbit hole that they have completely lost contact with common sense."