Macroeconomic round-up: European interest rates slashed to zero
Jason Walls breaks down the week's biggest macroeconomic stories. With special audio feature.
The European central bank (ECB) launched a “bazooka” last night by cutting interest rates to zero and slashing bank deposit rates to -0.4%.
It also announced it will expand its quantitative easing programme from €60bn, to €80bn a month.
Much like the cut to New Zealand’s official cash rate (OCR) this week, the ECB’s move came as a surprise to the markets.
“This was a much bigger bazooka than the market was expecting,” says Saxo Bank head of currency strategy John Hardy.
The euro dropped 1.6% to $1.08 against the greenback after the cuts were announced.
But the euro bounced back almost 4c after ECB president Mario Draghi suggested this was the last round of stimulus.
This was the biggest one-day swing in the currency’s history.
Mr Draghi also announced the ECB had cut the eurozone’s inflation expectations, which reflect the declining oil prices
It is now expected inflation will be at just 0.1% this year – much lower than the previous estimates of 1%
But Mr Draghi stressed that the eurozone was not in deflation.
It is no secret low oil prices have taken a toll on Saudi Arabia’s economy. This week, Reuters reported the country is looking for a loan of between $6-8 billion.
Last year, Saudi Arabia’s deficit was close to $100 billion and experts suggest this year could be just as bad.
S&P cut Saudi Arabia’s long-term sovereign credit rating two notches, down to A-, last month and Moody’s put the kingdom on review for a possible downgrade last week.
Follow NBR on Facebook, Twitter, LinkedIn and Instagram for the latest news and free on-demand audio from NBR Radio.
NBR Radio
Fri, 11 Mar 2016
Fri, 11 Mar 2016
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
Macroeconomic round-up: European interest rates slashed to zero
56382