In an unexpected move, European Central Bank (ECB) President Mario Draghi announced a fiscal stimulus plan to ease monetary policy in response to a global economic slowdown, as it cut eurozone growth rates to 1.1%, down 0.6% from the forecast just 3 months ago. The export dependent economy has felt the impact of the ongoing trade tensions, a slowdown in China and uncertainty around Brexit. As part of the package offered, the ECB left its main refinancing rate, which determines the cost of borrowing in the economy, at 0% until the end of 2019. It also announced the launch of a new series of quarterly targeted longer-term loans for banks to try and generate liquidity, starting in September 2019 and ending in March 2021. Each with a
maturity of two years, which will be indexed to the refinancing rate, meaning that their cost will go up if rates are hiked next year. In a policy statement, the central bank said “These new operations will help to preserve favorable bank lending conditions and the smooth transmission of monetary policy”.
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