The European Central Bank (ECB) launched an aggressive package of measures in response to weaker demand from emerging markets on its exports that include cutting its key policy rate and pushing its deposit rate further into negative terrain.
The ECB, which lowered its forecast for economic growth and inflation to reflect the twin forces of lower exports and oil prices, cut the refinancing rate by 5 basis points to 0.0 percent, the deposit rate by 10 basis points to minus 0.40 percent and the marginal lending facility by 5 points to 0.25 percent.
"With today's comprehensive package of monetary policy decisions, we are providing substantial monetary stimulus to counteract heightened risks to the ECB's price stability objective," ECB President Mario Draghi told a news conference.
Draghi said the ECB is committed to keeping its policy easy for a long time - and may even loosen it further if necessary - saying he "expects the key ECB rates to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases."
However, Draghi added that as of now, taking into account the expected impact of the latest measures on growth and inflation, the ECB did not anticipate further rate cuts.
In addition, the ECB expanded its monthly asset purchases by 20 billion euros to 80 billion, adding that the current program is intended to run until the end of March 2017 but could also run even longer or at least until inflation is nearing its target of below, but close to 2.0 percent.
In order to strengthen the effect of its asset purchases, the ECB will now also purchase euro-denominated, investment-grade bonds by non-banks. This expanded list of bonds will take effect toward the second quarter, Draghi said.
As the final part of its package, the ECB will launch four new longer-term refinancing operations - named TLTRO II - each with a maturity of four years and starting in June. Financial institutions will be able to borrow up to 30 percent of their stock of eligible loans and the interest rates will be fixed over the life of the loans at the rate of the main refinancing operations.
For banks whose lending exceeds a certain level, the rate on the refinancing operations will be even lower, and may equal the ECB deposit rate, now at minus 0.40 percent.
"The new operations will reinforce the ECB's accommodative monetary policy stance and will strengthen the transmission of monetary policy by further incentivizing bank lending to the real economy," Draghi told a press conference.
The combination of rate cuts, expanded asset purchases and a new refinancing operation was more aggressive than expected by most economists and comes after the ECB at its previous meeting in January raised the prospect of further easing in connection with an update of its forecasts.
Since January, the euro zone has fallen back into deflation with headline inflation falling to minus 0.2 percent in February from 0.3 percent in December, and core inflation, which excludes energy, food, alcohol and tobacco, down to 0.7 percent from 1.0 percent.
Draghi acknowledged that low or even negative inflation is "unavoidable over the next few months," due to changes in oil prices, and underscored that the ECB was anxious to prevent low inflation from becoming entrenched in other prices and expectations.
Fresh data show weaker-than-expected growth at the start of this year, with growth dampened by subdued growth prospects in emerging markets, volatile financial markets, the sluggish pace of structural reforms and the necessary pay-down of debt.
In its latest forecast, the ECB lowered its forecast for 2016 economic growth in the 19-nation area to 1.4 percent from December's forecast of 1.7 percent, and the 2017 forecast to 1.7 percent from 1.9 percent. The forecast for export growth this year was cut to 3.0 percent from 4.0 percent and the 2017 forecast was trimmed to 4.3 percent from 4.8 percent.
The outlook for inflation this was cut to 0.1 percent, up from 2015's 0.0 percent, from the December forecast of 1.0 percent. For 2017 inflation is seen rising to 1.3 percent compared with the previous forecast of 1.6 percent.
The European Central Bank issued the following introductory statement to a press conference by its president, Mario Draghi and a transcript of the question and answer session: