Moving at last

5 June 2014 By Neil Unmack Follow @unmack1

The ECB cut its deposit rate below zero, and offered ultra-cheap loans to entice banks to lend. The weapons are powerful, and backed up by the hazy promise of private-asset purchases. Draghi is doing the best he can to fight the slump with limited tools. Better late than never.

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The ECB on June 5 cut all its main rates to record lows, notably announcing that it will charge banks 0.1 percent for parking funds at its overnight facility.

ECB President Mario Draghi outlined a four-year, 400 billion euro scheme giving banks that have been holding back credit due to looming stress tests an incentive to increase lending to businesses in the euro zone.

Other steps included extending the duration of unlimited cheap liquidity for euro zone banks, injecting about 170 billion euros by stopping tenders that withdrew funds spent on past government bond purchases, and preparing for possible future purchases of asset-backed securities to support small business.

Projections published by the ECB showed inflation would be just 0.7 percent this year, 1.1 percent next year and 1.4 percent in 2016, a downward revision and far below the ECB’s target of below but close to 2 percent.

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