ECB cuts rates and announces the reactivation of the asset acquisition program


ECB key points:

  • The European Central Bank reduced its deposit facility rate for the first time in two years.
  • The entity established that the asset acquisition program will be reactivated as of November.
  • Commercial banks will now be remunerated in terms of their reserves under a new two-tier system.

The European Central Bank brought the cost of money to a new historical low. This decision was perpetuated after the rates remained stable for approximately two years.

Such a change, worth mentioning, has taken place in an environment where the vast majority of central banks have acted in one way or another on the expansionist front.

This arbitration is presented at a key moment for the ECB, since the September meeting (sixth of 2019) represents the penultimate conglomeration of the bank under the command of the “teacher”, Mario Draghi. It should be remembered that after its term ends at the end of October, Christine Lagarde, former president of the International Monetary Fund (IMF), will proceed to take the reins of this key institution in the global financial framework.

In detail, the ECB reduced the deposit rate to -0.50%, while both the rates referring to both the main operations and the marginal credit facility remained stable at 0.00% and 0.25% respectively.

Additionally, the entity revoked any prospect of rates rising in the near future and claimed that they will remain low until they are close enough, but below, to their inflation target of 2%.

How will the euro end in Q3 of 2019? Find out here with the trading guides by the DailyFX team.

Regarding the asset acquisition program, the committee commented that it will continue to fully reinvest the principal obtained through the instruments acquired during this program. Additionally, and seeking to mitigate the sharp economic slowdown that the old continent has perceived, the European bank announced that it will reinstate the program during the month of November. This new plan will have a budgetary objective of 20 billion euros per month and is expected to remain active until necessary.

Related to the harmful effects of negative interest rates for commercial banks, the ECB mentioned that it will introduce a two-tier system under which part of the banks' excess liquidity capital will be remunerated.

After these decisions, therefore, the focus is now on the speech that Mario Draghi will present at 8:30 AM EST. Here Mario Draghi is expected to provide greater clarity to what these decisions represent and a more detailed assessment of the state of the European economy.

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Chart 30 minutes EUR / USD:

30 minute chart EUR / USD - 09/12/2019

Following the decision, the EUR / USD has canceled all the progress that had been made during the Asian session and part of the European session.

Stay tuned for a more in-depth analysis of what decisions by Draghi and the company represent for the future of the euro.

How traders currently operate the euro? Take a look at Our IG client positioning indicator.


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Written by Quasar Elizundia – Market Analyst

Follow me in @QuasarElizundia

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