European Central Bank announces moves to boost eurozone economy

European Central Bank President Mario Draghi announced the ECB's negative interest rate policy at a press conference last month. Photo by Flickr user European Central Bank.

Photo of President Mario Draghi courtesy of European Central Bank

After meeting in Frankfort on Thursday, the European Central Bank announced a new six-point stimulus package aimed at improving the eurozone economy.

Among the new measures, the central bank will increase its quantitative easing program from 60 billion euros to 80 billion euros a month.

The bank also will cut its main refinancing operations interest rate from 0.05 percent to 0 percent. In addition, it will lower its bank deposit rate from -0.3 percent to -0.4 percent.

“We have shown today that we are not short of ammunition,” ECB President Mario Draghi said at a press conference in Frankfurt.

If you put your money in the bank when the deposit rate is negative, instead of being paid interest on your money, you will receive less money than what you deposited.

As economist Mohamed El-Erian told PBS NewsHour economics correspondent Paul Solman: “The idea is to push households and push companies to take on more risk.” In theory, this in turn will boost growth and, eventually, a healthy amount of inflation.

To a degree, this has happened in Europe, although with less success than expected. Inflation rates, for example, are still well off the ECB’s target goal of 2 percent.

Draghi noted, however, that “the experiences we had with negative rates have been very positive.”

“How low can we go?” asked Draghi. “Rates will stay low, very low for a long time.”

While the ECB does not anticipate that it will be necessary to reduce rates further, the central bank will keep its options open as it sees how the economy fairs, said Draghi.

But holding the economy up cannot be the ECB’s job alone, he continued, encouraging European governments to act on a fiscal policy that would boost spending and growth — investing in infrastructure, for example.

“Reform efforts need to be stepped up in the majority of euro area countries,” he said. “All countries should strive for a more growth-friendly composition of fiscal policies.”