European Central Bank injects fresh stimulus in bid to inspire sluggish eurozone

European CB cuts key rate to resume bond-buying

Inflation has begun to fall, the continent is feeling the effects of the trade war between China and the USA, and Germany, Europe's largest economy, has been teetering on recession.

Stocks gained on speculation the US and China could be moving closer to a trade deal and after Europe's central bankers restarted stimulus.

The ECB also will also introduce a tiered system to exclude some of the banks that would be suffering from negative rates - something that has been done in Japan and Denmark already.

European Central Bank chief Mario Draghi said in July that uncertainty caused by trade tensions and "the possibility of a hard Brexit" was weighing on the eurozone economy. It would first cut in interest rates from a negative 0.4% to minus 0.5%.

The single currency initially tumbled yesterday after the European Central Bank cut its deposit rate by 10 basis points to a record low of minus 0.5 per cent and said it would restart bond purchases at a rate of 20 billion euros a month from November 1. Markets do not expect rates to rise for almost a decade.

In fact, with an interest rate of -0.5%, the Euro will continue to struggle against most currencies although it is possible that perhaps some of the selling will update right around this big figure and cause a bit of a bounce.

While services firms and employment have held up relatively well, industrial firms have seen activity slump amid uncertainty about global trade.

President Donald Trump agreed on Wednesday to delay an additional increase in tariffs on Chinese goods by two weeks "as a gesture of good will". Researchers cut their 2019 growth forecast to 0.5 percent from 0.6 percent, and warned its outlook could be downgraded further.

The Federal Reserve is due to meet next week as economic indicators give mixed signals about whether the record-long expansion will end soon.

"On both sides of the Atlantic, highly accommodative monetary policies limit the risk of financial turbulence", said Holger Schmieding, chief economist at Berenberg Bank in London. The bank ended a previous bond-purchase stimulus only in December after buying 2.6 trillion euros [$2.9 trillion] in financial assets from banks.

They also argued that the bloc is merely experiencing a slowdown, not a recession, and that bond purchases, the ECB's most powerful tool, should be reserved for real crises, especially since the European Central Bank has already used up much of its firepower in past rounds of stimulus.

The bank kept those bond holdings by reinvesting the proceeds of expiring bonds, thus maintaining the level of monetary stimulus.

Trump has publicly criticised the Fed for not cutting rates more aggressively, but positive economic data has cast some doubt on the need for extensive easing.



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