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ECB lowers rates further and keeps additional options

September 5, 2014

The European Central Bank’s (ECB)  unexpectedly cut interest rates to spur economic growth and stave off the threat of deflation. The Governing Council reduced all three of its main interest rates by 10 basis points. The benchmark rate is now 0.05% and the deposit rate is now minus 0.2%. The central bank will also start buying securitized debt (ABS) and covered bonds, potentially easing the flow of bank funding for the region’s faltering economy. “The euro system will purchase a broad portfolio of simple and transparent securities,” Draghi said. However, yesterday’s decision was unanimous, with some governors wanting more action. ECB President Mario Draghi said this actions together with already-announced long term loans “will have a sizable impact on our balance sheet.” Draghi also said quantitative easing was discussed and might be an option if necessary. The Euro dropped below USD 1.30 for the first time since July 2013, and the Swiss National Bank is challenged keeping the Swiss franc from appreciating.

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