For most of its short life, the European Central Bank fretted about inflation being too high. Now it has the opposite concern. The fear of deflation explains the package of measures announced by Mario Draghi on Thursday. Three months ago, the ECB president disappointed the markets by coming up with less stimulus than he had led them to expect. This time there were no half measures.
The ECB sets three interest rates and it cut all of them. The central bank has been buying bonds in return for cash at a rate of €60bn (£47bn) a month, but will now up the purchases to €80bn a month for at least a year, and probably longer. It launched a scheme on Thursday under which commercial banks would be paid for borrowing money provided they re-cycle the funds to the private sector in the form of loans to households and companies. And still it wasn’t enough to slake the insatiable thirst of the financial markets for more and more stimulus. The euro initially fell on the foreign exchanges but then rose when Draghi said the ECB did not anticipate the need for any further cuts in interest rates.
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