European Central Bank lowers deposit rate to minus 0.5 percent

The letter included a translation into English of a motion passed by Dutch parliament that says offering banks "tiered", or preferentially high, interest rates on deposits held at the ECB would be unfair to pension funds that are now forced to invest at negative rates. U.S. President Trump reacted negatively. And the Fed sits, and sits, and sits.

The purchases pump newly created money into the financial system to lower borrowing costs and raise inflation.

"The Governing Council expects (bond purchases) to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key European Central Bank interest rates", the European Central Bank said in a regular policy statement. In his last major announcement as ECB President, Mario Draghi said the decisions to cut rates and restart quantitative easing were taken in order to boost inflation and aid with the "persistence of prominent downside risks".

Its dovish stance comes after Germany was pushed to the brink of a recession by the intensifying US-China trade war.

"If on top of this, banks are partially compensated by tiering...but pension funds are not, then the ECB will further erode support for its very unconventional and risky policies" he said. Christine Lagarde, former head of the International Monetary Fund, will step in as the new European Central Bank president and has already indicated more stimulus packages will be on the way.

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Lagarde is set to take the reins on October 31 - the date now set for Brexit. But the euro later swapped the slump for a 0.4 per cent gain.

Eurozone inflation remains well below its 2% target.

'It is clear that without fiscal stimulus, Draghi's final stunt will not necessarily lead to a happy end'. So, what was announced by the European Central Bank today?

Looking ahead, any further Brexit developments and United Kingdom political fallout are certain to cause movement in the pound euro exchange rate.

'But let's face it, neither of them truly think [exchange rates are the target] and this is more of a case of a central banker being drawn into a political argument that he'd rather steer clear of, ' said Craig Erlam from Oanda.

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