Last hooray or sustained fireworks? The ECB just lifted at least parts of a white rabbit out of the hat, cutting interest rates by 5 and 10 basis points. To be precise, the ECB lowered the refi rate to zero, from 0.05%, the deposit rate to -0.4%, from -0.3% and the marginal lending rate to 0.25% from 0.3%. Particularly, the change to the deposit rate had been subject to a lot of discussion and criticism in the days and weeks leading up to the meeting.
But the ECB went further and contrary to normal traditions, they also presented other measures in the written statement: an increase in QE to €80bn per month and an inclusion of corporate bonds into the QE programme. That was the maximum that the ECB could do, but it will do little to remove doubts about the impact of these measures. We will now stay tuned for the press conference starting at 2.30 pm CET to see how ECB President Draghi will explain the announced measures. It will be interesting to see how Draghi will address recent criticism on the effects of the ECB’s monetary policy and whether he can give the markets the feeling that the ECB indeed is almighty and powerful and not impotent.