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Euro tumbles as ECB cuts rate and announces asset purchases

by: Anna Fedorova
  • 04/09/2014
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The European Central Bank has cut its headline interest rate by ten basis points to 0.05%, prompting the euro to slump against the dollar, and said it will begin a long-awaited asset purchase programme in the coming months.

ECB president Mario Draghi (pictured) announced a surprise decision to cut both the main refinancing rate as well as the deposit rate, which has also been reduced by ten basis points to -0.2%.

The euro fell sharply by 1% against the US dollar immediately after the news, trading below $1.30 by 13:40 BST.

Draghi then announced the ECB will buy asset-backed securities and covered bonds as part of a so-called ‘private quantitative easing’ package aimed at boosting lending and liquidity. The central bank continues to hold off from more conventional forms of QE such as purchasing sovereign debt.

The common currency has remained strong against the US dollar throughout the year, trading as high as $1.39 in March.

However, Draghi has today been forced to act as bleak eurozone GDP and inflation numbers continue to emerge, building fears the region is heading into a deflationary spiral.


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