The European Central Bank (ECB) has just cut its benchmark interest rate from 0.15 percent to a new record low of 0.05 percent. They have also announced new stimulus measures as they continue to wage all-out war with a stagnating economy and a deflating euro currency.
The move comes after inflation in the EU continued to fall in August. Consumer prices (CPI) was up a meager 0.3 percent annually last month. This is a brand new five year low and was below the 0.4 percent number in July. The ECB inflation target is at two percent. In other troubling data, the unemployment rate for the EU remains stickily high at 11.5 percent. This news added to mounting pressure for ECB President Mario Draghi to act in order to stimulate the Eurozone economy.
The result: the ECB, in a surprising move, has decreased its main refinancing rate by 10 basis points to 0.05 percent. Its marginal lending facility was decreased by 10 basis points to 0.30 percent and the rate of its deposit facility was slashed another 10 basis points to minus 0.20 percent. Essentially, they are charging commercial banks to keep money on deposit with a hope they will lend more money to businesses and consumers. This, if successful, will result in increased capital expenditures by businesses, like hiring employees. This would then drive consumer spending which could spark inflation numbers higher.