The ECB’s governing council in Frankfurt rubber-stamped plans to lower its deposit rate and launch another round of bond-buying. Mr Draghi warned that the Eurozone faced “more protracted weakness” than previously forecast, as a result of a global trade slowdown and Britain’s European Union departure. Donald Trump, the US President, issued a furious response to the new bank boss, accusing the ECB of attempting to devalue the euro.
In an angry tweet, he blast: “European Central Bank acting quickly. They are trying and succeeding, in depreciating the euro against the very strong dollar, hurting US exports… And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”
At a press conference, Mr Draghi responded: “We have a mandate. We pursue price stability. And we don’t target exchange rates. Period.”
Mr Trump is likely to remain furious by the slide of the euro today.
The currency is now down 0.5 percent against the dollar at $1.0955.
The ECB chief also revealed that the bank’s weaker economic forecasts did not factor in the possibility of a no-deal Brexit.
He admitted that the chances of the UK leaving the EU without an agreement has significantly increased.
Mr Draghi said: “This baseline scenario is… relatively favourable, because it doesn’t contain the case of a hard Brexit, for example – the probability of which has gone up over recent time.
“And it doesn’t contain some of the trade measures, trade escalation, at least, some of the trade escalation that has taken place since August. So in this, with this relatively favourable baseline scenario, there was a downgrade in inflation and inflation expectations.”
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He warned that the risk of recession continues to grow amid the levels of uncertainty.
“We still think the probability of a recession for the euro area is small, but it’s gone up,” he said.
“But still we believe it’s a small possibility.”
The ECB today cut its inflation forecasts for the next three years and its growth projections for 2019 and 2020.
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Officials claimed that the gloomy news required a drastic response as they announced the fresh stimulus package.
The measures to prop up the EU’s 19-member single currency bloc see its deposit rate cut from -0.4 percent to a new record low of -0.5 percent.
The bank have also decided to restart its quantitative easing programme, buying €20 billion bonds every month from November.
This is the first time the ECB has cut rates since March 2016 and the resumption of bond-buying comes after bankers paused the programme last December after buying €2.6 trillion of bonds.
An ECB statement said: “The governing council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, two percent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”
The bold move will likely be the last under Mr Draghi’s reign with the ECB handing power to Christine Lagarde at the end of October after his eight-year term comes to an end.
He was forced to defend the decision, insisting: “Negative rates will not provoke the collapse of the financial system.”
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