Just a few months ago, the European Central Bank put the limitations on a vast economic stimulus program planned during the financial crisis. On Thursday, it surprisingly reversed course and restored some of the measures, gesturing the rising threat of a recession. On Thursday, the ECB announced the third round of its Targeted Longer-Term Refinancing Operations—or TLTRO—package, which will bid cheap two-year loans to eurozone banks, linked to loans to businesses and households. This makes the Frankfurt-based central bank the first in the developed domain to ease. The declaration sent the euro down by 0.6% against the dollar. Against the pound, it dropped by 0.1%. The central bank said rates would endure at their present levels “at least through the end of 2019” rather than its former guidance of “at least through the summer”.
Its core interest rate was reserved at zero and at minus 0.4% for banks to park their money with the ECB – cheering them to lend money rather than store it. The bank’s president, Mario Draghi, told reporters its common actions were “adding accommodation” to its accommodative policy stance. He said: “We maintained the risk valuation as tilted to the downside. This isn’t common because we generally say when we take some policy actions the threats get back into balance.” Mr. Draghi explained that was because the risks, presently, were factors outside of its control. The amount of the measures announced by the ECB emphasize its worries over slowing growth in the Eurozone. Its decision to push back on any plans to raise rates anytime soon trails similar moves from central banks around the world, comprising the US Federal Reserve and the Bank of England.
Mario Draghi, the president of the European Central Bank, indirectly blamed White House policies for the economic harm behind the decision. “Lower confidence produced by the trade deliberations” was a key cause of economic slowdowns in Europe, China and developing markets, Mr. Draghi said at a news briefing. He added, however, that he did not expect a recession. The bank also pushed back the date of its first possible increase in benchmark interest rates by no less than four months, saying there would be no change until 2020. That means that Mr. Draghi will tend his full nine-year term without ever having supervised a rate increase. He leaves office at the end of October. “The bank is saying, ‘We are doing everything we can,’” said Florian Hense, an economist at Berenberg Bank in London. The past decade had been rough for Europe.
The new lending facility for the banking sector will be identified as Targeted Longer-Term Refinancing Operations. Andrew Kenningham, the chief Europe economist at Capital Economics, said the management on the next rate rise and the financing for banks was “more accommodative than the markets had expected”. “We doubt, however, that the new events will be enough to reverse the economic slowdown,” he said. The moves provided a short-lived surprise to European stock markets. The key indexes, which had been lower for the day, concisely jumped into positive territory. But any euphoria about the incentive may have been outweighed by the realization that the central bank is more worried about the economy than investors thought. Stocks slumped in Europe and, later in the day, on Wall Street. “Today’s announcements have some flavor of panic,” Carsten Brzeski, chief economist at ING Germany, said in a note to clients.