ECB expands stimulus, but not as expected

The bank said it is reducing the interest rate on deposits from commercial banks from minus 0.2 percent to minus 0.3 percent.

The bank’s governing council had also been expected to have discussed more extreme ideas, possibly a two-tier deposit rate that would punish banks parking too much cash with the central bank or the purchase of municipal and corporate debt. Dow futures were up 0.5 percent to 17,570.00 and broader S&P 500 futures rose 0.5 percent to 2,060.90.

“The cardinal sin that Draghi committed was failing to lean against overblown market expectations”, wrote Marc Ostwald, strategist at ADM Investor Services in London. The QE plan had been due to expire next September. Today, eight of the euro zone’s 19 countries, including Spain and Greece, have negative inflation rates.

Meanwhile, gold miners are bucking the trend as gold prices rebounded from near six-year lows after investors rushed to the safe-haven metal.

The package sent traders scrambling to unwind short euro positions, which they had built since late October when Draghi said there would be another round of stimulus measures.

The ECB downgraded its inflation forecasts to one per cent in 2016 and 1.6 per cent in 2017 from 1.1 per cent and 1.7 per cent respectively.

The scheme is to be enlarged to include the purchase of municipal and regional bonds. Mr Draghi also said proceeds from the various assets bought would be reinvested back into the scheme.

European Central Bank did not expand the size of the monthly purchase of assets.

-extended its offer of unlimited short-term credits to banks through the end of 2017.

The euro shed 0.75 percent against the dollar to trade at $1.0862 after shooting 3.1 percent higher on Thursday, its biggest one-day gain since March 2009. Earlier in the day, it had been pushing down toward $1.05.

Stock market moves were equally sharp. Germany’s DAX was down a whopping 3 percent while the CAC-40 in France slid 2.6 percent. The ECB is “willing and able” to act further if needed, he said. This is what many traders have been waiting all week for but with the selloff today, things will be that much more interesting. “I think these measures need time to be fully appreciated”.

“There will be many looking for a smoking gun this morning, but what the European Central Bank did last night just doesn’t cut it when we look at the magnitude of the market’s reaction”, Rivkin chief executive Scott Schuberg said.

European stocks are getting pounded after the ECB decision on rates and stimulus.

Low inflation can help consumers by making their euros go farther.

Weak inflation of the sort prevalent in the eurozone makes it harder for the currency union’s indebted members, such as Greece, to reduce their burdens and to bring their business costs down relative to their eurozone trade partners – a necessary step in their economy recovery.

The eurozone economy as a whole grew by 0.3 percent in the third quarter, with falling unemployment and some indicators pointing up.

Dropping interest rates comes in marked contrast to the strategy being pursued by the U.S. Federal Reserve, which is soon expected to raise interest rates as the American economy chugs forward.