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Updated 15:04 28/02/20

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ECB stimulus less than expected

Adam Pike, News Editor
4 Dec 2015, 9:24 a.m.

After vowing to do whatever it takes to save the Eurozone, Mario Draghi, has cut its key deposit rate and extended its QE program.

The overnight deposit rate has been cut from -0.2% to -0.3% and the banks money printing programme has been extended to March 2017.

The reduction in the interest rate paid on deposits held at the ECB is supposed to penalise banks for hoarding cash and encourage them to lend the money into the economy. The theory being, additional cash circulating in the economy will encourage economic activity.

Markets had been expecting the ECB to take stronger action and increase the size of its monthly QE program, rather than just extending the program to March 2017. Eurozone stock markets reacted negatively to the announcement with the FTSE falling 2.7% whilst the French and German stock markets fell over 3%.

The fact the ECB is still printing its currency and doing everything it can stimulate lending is a clear sign the Eurozone economy is still in a state of emergency. QE in Japan and Sweden has also failed, maybe the best we can hope for is that QE can hold the system together for a little longer.

The gold price in U.S. dollars rose on the news, however, the price in sterling fell as the pound strengthened against the dollar. The gold price has been hovering around £700 per ounce all week and currently trades at £701.42 per ounce.

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