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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden and Nick Fletcher

Markets go into reverse despite ECB cutting rates and boosting QE - as it happened

Euro on rollercoaster ride after Draghi comments
Euro on rollercoaster ride after Draghi comments Photograph: Daniel Roland/AFP/Getty Images

European markets end sharply lower after rollercoaster ride

A surge in stock markets and a slump in the euro as the European Central Bank announced its new stimulus measures soon went into reverse after the central bank’s president Mario Draghi suggested that might be all there was.

With another slide in the oil price as hopes of a meeting of producers to tackle the glut began to fade again, it ended up being a volatile day for investors. So markets suffered turnarounds of several hundred points, and the euro saw a more than 3% jump from its lows to its highs against the dollar.

So the final scores in Europe showed:

  • The FTSE 1oo finished down 109.62 points or 1.78% at 6036.70 after earlier hitting 6203
  • The FTSEurofirst 300 fell 1.77% to 1311.74
  • Germany’s Dax dropped 2.3% to 9498.15, after peaking at 9995
  • France’s Cac closed 1.7% lower at 4350.35
  • Italy’s FTSE MIB lost 0.5% at 18,118.23
  • Spain’s Ibex bucked the trend and ended up 0.07% at 8766.9
  • In Greece, the Athens market added 0.56% to 555.7

On Wall Street, the Dow Jones Industrial Average is currently down 150 points or 0.8%.

The euro is currently at $1.1214, having earlier fallen as low as $1.0820. It started the day at $1.0997.

Meanwhile Brent crude is down 2.5% at $40.01 a barrel, off its worst level of $39.63.

On that note it’s time to close for the day. Thanks for all your comments, and we’ll be back again tomorrow.

The eurozone needs reforms and fiscal measures alongside the ECB’s stimulus package if its economy is to recover, argues our economics editor Larry Elliott:

For most of its short life, the European Central Bank fretted about inflation being too high. Now it has the opposite concern.

The fear of deflation explains the package of measures announced by Mario Draghi on Thursday. Three months ago, the ECB president disappointed the markets by coming up with less stimulus than he had led them to expect. This time there were no half measures.

The ECB sets three interest rates and it cut all of them. The central bank has been buying bonds in return for cash at a rate of €60bn (£47bn) a month, but will now up the purchases to €80bn a month for at least a year, and probably longer. It launched a scheme on Thursday under which commercial banks would be paid for borrowing money provided they re-cycle the funds to the private sector in the form of loans to households and companies.

And still it wasn’t enough to slake the insatiable thirst of the financial markets for more and more stimulus. The euro initially fell on the foreign exchanges but then rose when Draghi said the ECB did not anticipate the need for any further cuts in interest rates...

Draghi knows that monetary policy – interest rates, quantitative easing and incentives to borrow – can only do so much. He would like his actions to be supported by structural reform and a more aggressive use of fiscal policy.

His full analysis is here:

Mario Draghi shot down his own bazooka, suggests Philip Shaw at Investec:

The announcement of the package resulted in a significant fall in the euro (by a cent and a half to $1.0825) and a rally in stocks and bonds. However this was more than reversed when Mr Draghi hinted that rates may have hit the bottom. Indeed he explained that another reason for avoiding a tiered structure was so not to signal that rates could go as low as the ECB wanted. To us this is the worst of both worlds – taking the deposit rate further below zero but with verbal interventions unwinding positive market effects.

Overall we welcome the ECB’s willingness to act to bolster the recovery and to help to achieve its ‘below, but close to 2%’, inflation target. The package of measures is certainly substantial. However we remain wary of the ‘unintended consequences’ on the banks arising from negative rates.

Moreover at least we judge Mr Draghi’s comments on interest rate prospects has have been unhelpful, especially if today’s market reaction is not unwound.

Oil price falls on doubts Iran will join output freeze

As well as the volatility after the ECB announcement, markets have also been rattled by another slump in the oil price, as reports cast doubt on whether a meeting between producers later this month would go ahead.

Opec and other producers were expected to meet in Russia on March 20 amid a glut of supply and falling demand which has put severe pressure on the crude price. But with Iran reluctant to join a proposal to freeze output at January’s levels, Reuters is reporting that the gathering in Russia may not take place.

That has helped push oil lower once more, with Brent crude down 3% to $39.81 a barrel.

Updated

Despite the day’s surge in the euro after the ECB meeting, Capital Economics still reckons it will fall back against the dollar, mainly because the US Federal Reserve is on the path of raising interest rates. The research group said:

The euro’s resilience in the face of greater-than-expected stimulus from the ECB does not alter our view that the currency is likely to fall towards parity against the dollar later this year. This is because that view has been, and continues to be, primarily driven by our forecast that the Fed will tighten policy much more aggressively than anticipated by the average investor.

Although the euro initially slid to around $1.085 in response the announcement of greater-than-expected stimulus from the ECB, the currency subsequently rebounded as Mario Draghi suggested in his press conference that he did not envisage interest rates being cut even further. Indeed, at the time of writing, the euro was actually stronger against the dollar (about $1.115) than before the stimulus was communicated....

There is a stark contrast between our view of the prospects for monetary policy in the US and what is currently discounted in the markets. Our forecast is that rising inflation will prompt the Fed to raise its target for the federal funds rate to a range of 1.0-1.25% by year-end (from 0.25-0.5% now), whereas the implied rate of the December federal funds futures contract is currently only around 0.65%.

George Magnus: Helicopter money could be next

By ‘throwing the kitchen sink’ at the eurozone’s problems, the European Central Bank may have moved closer to the point where it has to actually start showering cash on the economy.

So argues George Magnus, an experienced City voice who used to be head economist at UBS.

He argues that the market reaction shows investors don’t believe today’s package of interest rate cuts, cheap loans and a beefier asset purchase scheme will work.

So what’s left? Free money, effectively.

Magnus writes:

So is the ECB’s arsenal now bare? If it sticks to the general approach to policy it has currently then yes. But, though this is inconceivable as thing stand, there are things the ECB could theoretically do. It could take us towards Milton Friedman’s “helicopter money.” This would involve the ECB taking a more direct role in creating money that might be distributed directly to households, companies and banks, for example by buying loans from banks, or public debt directly from governments, or financing cash distributions in the form of tax cuts or investment allowances.

These ideas will remain the subject of idle chatter for the time being. But eventually, who knows? If today’s kitchen sink episode ends with a whimper, as seems likely, and governments continue to stand aside from the economic fray, Europeans may demand still more of their central bank.

On the same theme Jasper Lawler, market analyst at CMC Markets, said:

Draghi did the hard work of convincing an apparently divided group of European central bankers that a bazooka was needed but committed the cardinal central banker sin of signalling a possible end to what is essentially an open-ended program.

The City of London.

The markets are blowing a loud raspberry towards the European Central Bank headquarters.

Britain’s FTSE 100 has now shed 64 points, or more than 1%, to 6082 in late trading. European markets are also in the red, having surged over 2% when the ECB’s interest rate cuts were announced.

Alastair McCaig, market analyst at IG, says Mario Draghi is to blame, for telling reporters that further interest rate cuts are unlikely.

The ECB president managed to trip himself up in the press conference Q&A session.

Updated

Ian Kernohan, economist at Royal London Asset Management, says today’s package of ECB measures is a solid reaction to the recent economic downturn.

The markets may be volatile now, but the verdict of the real economy is what matters.

Kernohan says:

“Having been stung in December by disappointing market expectations, it was important that Mr. Draghi did not make the same mistake twice. Since then, we have seen a major spike in financial market volatility, a fall in Eurozone inflation, some weakness in the main Eurozone business surveys and cuts to global growth forecasts.

“Today’s announcement more than met expectations for policy easing, with a cut in the refi and deposit rates, a €20bn increase in monthly QE purchases, purchases of corporates bonds, and a new Long Term Refinancing Operation (LTRO) arrangement. The addition of non-bank corporate bond purchases and the new LTROs, where borrowing can be as low as the deposit rate, were perhaps the main surprises.

“The initial reaction of markets was very clear, the Euro fell sharply and equities rallied. Draghi’s comment at the press conference that he thought further rate cuts were now unlikely, reversed this initial reaction. Looking through these very short term reactions however, the proof of the pudding will be a rise in Eurozone inflation expectations and a further pick up in lending growth.

Updated

Here’s some market reaction from Reuters:

Giuseppe Sersale, fund manager at Anthilia Capital, said Draghi’s remarks that more rate cuts were unlikely caught investors, who were heavily selling the euro by surprise.

“However, regardless of the short term reaction, we see the stimulus package as very important,” he added.

The euro zone’s banking index remained up by 4 percent. <end>.

David Lamb, head of dealing at FEXCO Corporate Payments, believes that the eurozone’s battle against deflation has just replaced Brexit as the biggest issue in Europe.

Here’s his take on today’s package of fresh measures:

”The man who once shared a nickname with a pixellated plumber has thrown the kitchen sink at stimulating the Eurozone economy. Super Mario has morphed into Drastic Draghi.

The scale and duration of the ECB’s money printing programme alone would have been enough to prompt a big intake of breath from the markets.

But coupled with the slashing of the interest rate - which effectively means the ECB will be paying banks to lend to consumers - this is a breathtakingly bold burst of monetary policy.

The ECB is clearly deeply concerned at the threat of deflation, and is betting that this huge injection of cash into the ailing Eurozone economy will stop the rot.”The Euro’s response has been nothing short of a rollercoaster. Its initial plunge was reversed during Mr Draghi’s press conference, and his hints that further interest rate cuts are off the table.

It took a lot to trump the uncertainty caused by the UK’s Brexit saga - but the ECB’s desperate throw of the dice has made all other European issues look like a sideshow.”

Mario Draghi didn’t look too happy as he left today’s press conference:

ECB press conference in Frankfurtepa05204482 Mario Draghi (L), president of the European Central Bank (ECB), and vice president Vitor Constancio leave after an ECB press conference in Frankfurt am Main, Germany, 10 March 2016.

Mihir Kapadia, CEO of Sun Global Investments, has warned that investors may not be convinced by this latest eurozone stimulus plan.

“Today’s bold announcements by the ECB was a far more extensive programme than what was expected, and just shows the immense pressure on Draghi to demonstrate the ECB has got to grips with what is an increasingly worrying economic picture.

The stimulus should theoretically boost economic activity, however investors are understandably reluctant about making this presumption given low global growth, global deflationary pressures and poor demand for credit in Europe.”

Mario Draghi’s statement is now online:

Introductory statement to the press conference

Research group Teneo Intelligence have turned it into a word cloud:

A word cloud of Mario Draghi's statement

Updated

Analyst: Greece, Italy, Spain and Portugal should benefit

There is a “strong argument” that the ECB has fired its bazooka today, says Christopher Vecchio, currency analyst at DailyFX.

He adds that the new measures to boost bank lending should help the eurozone’s struggling periphery:

Considering that only four Euro-Zone countries are on the wrong side of the net-borrowing/lending equation vis-à-vis the European Central Bank and National Central Banks (per Bank of Spain and Wall Street Journal), these new measures are most likely going to help reduce financial credit risk in Italy, Spain, Greece, and Portugal more than anywhere else.”

Bank shares are soaring following the news that the ECB will give them ultra-cheap loans:

Mario Draghi fires bazooka - a quick summary

President of European Central Bank Mario Draghi is on his way to a press conference following a meeting of the governing council in Frankfurt, Germany, Thursday, March 10, 2016. The European Central Bank cut all its main interest rates, expanded its bond-buying stimulus program, and offered new cheap loans to banks, making an unexpectedly aggressive effort to boost inflation and economic growth in the 19 countries that share the euro. (AP Photo/Michael Probst)
President of European Central Bank Mario Draghi arriving at today’s press conference Photograph: Michael Probst/AP

So, a quick recap.

The European Central Bank has slashed interest rates to fresh record lows, in its latest attempt to prevent the eurozone slumping into a Japan-style deflationary slump.

The headline borrowing cost is now zero, while banks are being forced to pay 0.4% for leaving cash at the ECB.

It took the move after slashing its growth and inflation forecasts. It now expects inflation to average just 0.1% this year, and warns that growth risks are “to the downside”.

ECB chief Mario Draghi said it was “crucial” to get inflation close to target without undue delay, and warned that:

The economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.

The ECB is widening its QE programme to €80bn per month, and will also start buying up debt issued by companies. It says the plan will help get inflation back to target, eventually.

It is also offering new, very cheap four-year loans to banks. Those loans could effectively see the ECB pay banks (!) to lend to the real economy.

The euro initially plunged on the news, but then rallied sharply after Mario Draghi, ECB president, said the bank didn’t expect to cut interest rates further.

That could disappoint the ECB (although they’d never officially launch a currency war.....)

Mario Draghi also told reporters that:

Updated

Our City editor Jill Treanor has written a Q&A explaining what the ECB has announced today, and why:

And finally, Draghi insists that the eurozone is not in deflation (even though prices are currently falling).

That’s the end of the press conference. We’ll do a quick summary now, and mop up the best expert reaction.

Updated

Draghi then repeats his statement that the ECB doesn’t expect to cut interest rates again, and emphasises that the facts could change.

Has someone slipped him a note about the soaring euro?

Draghi: Helicopter money is interesting

Q: Could the ECB consider ‘helicoptor money’ if the new measures announced today don’t have their necessary effect?

Draghi replies that the idea is “interesting”, and being studied by academics but the European Central Bank “hasn’t really studied the concept yet”.

Helicopter money is the idea of showing cash on the public to encourage them to spend, thus pushing prices up.

Updated

The wild swings in the euro in the last 90 minutes show that the markets really aren’t sure what to make of today’s announcements.

Draghi has also insisted that the ECB can’t simply wilt in the face of low inflation and weakening growth:

Q: Given that the fall in inflation is mainly due to cheaper oil, hasn’t the ECB over-reacted?

No, Mario Draghi insists. The global economic picture has worsened since December, and financial conditions have changed considerably since

This isn’t an over-reaction to the oil price. It is an adequate reaction to the weakening in the growth and price stability prospects.

Q: Are central bankers running out of ammunition?

Draghi replies that the “fairly long” list of measures announced today shows that this is not the case..

Francesco Papadia, a former director general for Market Operations at the European Central Bank, tweets that Draghi may have undermined his own stimulus programme:

Presumably today’s decision was NOT unanimous, otherwise Draghi would have said as much.

Mario Draghi and his team at the press conference
Mario Draghi and his team at the press conference Photograph: European Central Bank

Q: Did the European Central Bank’s governing council unanimously support today’s decisions?

Draghi replies that the majority in favour has been ‘overwhelming’.

He also claims that it didn’t matter that Germany’s hawkish representative, Jens Weidmann, didn’t get a vote this month (because of the ‘rotating’ voting system). Everyone gets to express their view.

Oh. Dear.

The euro has reversed its early fall and is now UP 1% against the US dollar.

Traders are reacting to Draghi’s statement that interest rates aren’t likely to be cut again.

They may also be calculating that the ECB has no more weapons in its toolkit. You can only throw the kitchen sink once.

Tomas Holinka, economist at Moody’s Analytics, says the ECB has launched a “broad attack” on the eurozone weak inflation rate, by using all the tools at its disposal.

He says it will unleash up to €800bn of commercal bank reserves, which is currently locked up in the ECB’s electronic vaults:

While the bank has revealed its policy instruments step by step in the past, now it announced all of them—cutting the interest rates, expanding the QE program and providing long-term liquidity—together.

This massive easing package should release as much as €800 billion parked at the ECB’s deposit facility and reserves, increasing inflation closer to the ECB’s target through higher lending and a weaker euro.


Reinhard Cluse, chief European economist at UBS, says the European Central Bank has ‘over-delivered’ today.

The ECB delivered a stronger-than-expected policy response today. We were on the dovish side of expectations anticipating a large increase in QE and the inclusion of corporate bonds within the ECB’s asset purchase spectrum.

However, the decision surpasses our dovish expectations.

He also expects “risky assets” including investment-grade corporate bonds, peripheral eurozone government debt, bank credit and stocks to all benefit. Good news for investors who own them.

Updated

The euro has bounced back, after Draghi said that the ECB doesn’t anticipate cutting interest rates again (although you never know).

That’s bad news for traders who have been shorting the euro....

Updated

Draghi says the decision to impose negative interest rates on eurozone banks has worked well.

He claims it has not hurt the banking sector overall (despite analysts arguing that it has hurt profitability)

But that doesn’t mean that the ECB can impose deeper and deeper negative interest rates, he adds.

Onto questions.

Q: How low can the ECB’s interest rates go?

“Rates will stay low, very low, for a long period of time”, says Mario Draghi.

We do not anticipate that it will be necessary to reduce interest rates further..... of course, new facts can change the picture, he adds.

Updated

Draghi ends his statement by urging eurozone governments to use the window of opportunity provided by the ECB to reform their economies.

The “majority of euro area governments” need to speed up their efforts, he says.

Draghi always ends his press conference statements with this sort of statement. The message doesn’t always get through.

The euro has fallen to its lowest level in six weeks against the dollar, down 1.6% on the day to $1.0825.

ECB slashes growth and inflation forecasts

The ECB has lowered its growth forecasts, Draghi says.

He blames lower global growth prospects, and cautious that risks are now to the downside (never a good message).

It now expects growth of just 1.4% this year, down from 1.7% three months ago.

And the ECB has slashed its forecast for inflation this year to almost zero, from 1% earlier.

Inflation will probably remain negative for the next few months, Draghi says, before recovering later this year.

Interest rates are going to stay at their current record lows, or lower, for a long time, says Draghi:

Some reaction to that last point:

Updated

Mario Draghi also confirms the ECB will launch four new refinancing operations - offering extremely cheap four-year loans to banks.

He also confirms that these loans could be as cheap as the ECB’s deposit rate, which has been cut to minus 0.4% today. As explained earlier, that means the ECB will be paying the banks to lend them money (!).

Updated

Draghi has a small surprise - the ECB will now buy up to 50% of a particular bond type though its QE programme (previously it was limited to 33%).

Mario Draghi at today’s press conference
Mario Draghi at today’s press conference Photograph: European Central Bank

Draghi: Our plan will help growth and boost inflation.

Draghi begins by says the ECB governing council has conducted a ‘thorough review’ of the monetary situation in the eurozone.

And that’s why it has drawn up today’s “comprehensive” group of policies, he continues.

They will help the economic recovery, and accelerate the return of inflation to close to, but below 2% (from -0.2% today).

He confirms that the headline interest rate has been cut to zero, and that ECB has boosted its QE asset-purchase programme to €80bn per month (from €60bn). And expanded it to include investment-grade corporate bonds.

This programme will run until March 2017, or longer if needed to get inflation on target.

ECB president Mario Draghi has arrived. He’ll read out a prepared statement, and then take questions. There will be lots, we promise.

Watch Mario Draghi's press conference here

Mario Draghi is about to give a press conference to explain the European Central Bank’s decisions.

You can watch it live here. I’ve also embedded it in the top of this liveblog - just click the play button.

A quick summary of today's ECB decision

The European Central Bank has cut interest rates in the eurozone to zero, expanded its money printing programme and reduced a key deposit rate further into negative territory as it seeks to revive the region’s economy and fend off deflation.

Going further than economists had expected, the ECB cut the eurozone’s main “refinancing” rate from 0.05% to zero, prompting a sharp drop in the euro against the dollar.

The central bank also cut its deposit rate by 10 basis points to -0.4%, it said in a statement. The latest cut in the deposit rate means the ECB will be charging banks more to hold their money overnight.

The ECB also expanded its quantitative easing programme to €80bn (£61bn) a month, up from €60bn.

ECB chief, Mario Draghi, had already indicated the central bank would announce fresh stimulus at the conclusion of this week’s policy-setting meeting. Economists had widely expected the ECB to expand its quantitative easing programme – where it pumps money into the economy by buying up assets from financial institutions –and to cut the deposit rate.

The Frankfurt-based central bank had come under growing pressure to increase support for the eurozone’s flagging economy after the single currency bloc slipped back into negative inflation in February.

The ECB just lifted “at least parts of a white rabbit out of the hat” today, by slashing interest rates and boosting its bond-buying programme, says Carsten Brzeski of ING.

But he also questions whether it will work:

That was the maximum that the ECB could do, but it will do little to remove doubts about the impact of these measures.

European stock markets are soaring, as traders salivate at the prospect of more money pouring into assets from the ECB.

The French CAC index has leapt by over 3%, with Germany’s DAX not far behind.

European stock markets today.

Alexandra Russell-Oliver of foreign exchange company Caxton FX says the ECB has exceeded expectations today.

ECB President Draghi announced more stimulus measures than markets had expected, including a cut to benchmark interest rates from 0.05% to 0.00%, weakening the euro.

ECB is also offering banks free money

The ECB has also announced a new long-term bank lending programme, called a TLTRO.

It will run for four years, and allow eurozone banks to borrow cheaply from the central bank.

Crucially, these loans could be as cheap as the ECB deposit rate - which it has just cut to minus 0.4%!

Economists are impressed:

(As part of the ECB’s rotating voting policy, the hawkish Bundesbank president Jens Weidmann had no say at today’s meeting.)

Updated

Andrew Sentance, a former Bank of England policymaker, says the ECB is close to the limits of central bank policymaking:

Some instant reaction from the Reuters news agency:

The ECB is also widening the scope of assets that it will buy through its QE programme.

It will now buy investment-grade corporate bonds, on top of the government debt it has been buying with newly minted money for the last year.

The pound has surged against the euro, to €1.3055.

That means one euro is worth 76.5p, down from 77.5p before the announcement.

Updated

Mario Draghi and the ECB has surprised the market with the cut to zero for the headline interest rate, says David Morrison, senior market strategist at Spread Co:

The ECB cut their headline minimum bid rate to zero from 0.05%. This has taken the market by surprise as we can see from the sharp sell-off in the euro. In addition the ECB have cut their deposit rate by another 0.1% to take it to 0.4% and increased the monthly bond purchases by €20 billion. So Mario Draghi has fired the big bazooka and given the market what it wanted and more. It now remains to be seen if this has a lasting impact on risk assets and if the euro will continue to slide.

Updated

Euro plunges

The euro has plunged as investors react to the ECB’s decision to cut interest rates and boost its QE programme.

Euro vs dollar today
Euro vs dollar today Photograph: Thomson Reuters

It has fallen from $1.0867 against the US dollar, from $1.097 before the announcement.

ECB INTEREST RATE DECISION

BREAKING: The European Central Bank has cut the interest rate across the eurozone to a new record low of zero.

That’s a big surprise; the rate was previously 0.05%.

The ECB has also cut the deposit facility rate deeper into negative territory, to minus 0.4% (from minus 0.3%). That means banks are going to be charged more for leaving cash unused in the electronic vaults, rather than lending it to customers.

And in another big move, the ECB has also boosted its quantitative easing programme by €20bn, to €80bn per month.

That means it will be buying more assets with newly printed money each month, in an attempt to drive inflation above zero.

Reaction to follow!

Updated

Just five minutes to go! And the euro is weakening a little, suggesting investors are expecting fresh action from the ECB.

For today to be a success, Mario Draghi needs to reassure investors that the eurozone recovery will continue.

So argues Ipek Ozkardeskaya of London Capital Group in her latest research note.

Today is all about Draghi’s capacity to convince the market that additional measures could foster the economic recovery and eventually generate inflation.

Here’s the scene inside the ECB’s headquarters in Frankfurt:

The cost of that HQ reportedly spiralled to €1.2bn; nice wooden flooring and fancy lights don’t come cheap!

City traders will be scrambling to the local sandwich shop before the ECB interest rate decision arrives....

Central bankers never admit they’re fighting a currency war. But Mario Draghi does have a good opportunity to weaken the single currency today.

Kit Juckes of Société Générale says:

I think the ECB has an opportunity to push the Euro lower and fight back against deflation. Market positioning is light and sceptical....

The euro is trading around $1.098 against the US dollar right now, down around 0.15%.

And one pound is worth €1.2941, meaning the euro is worth 77.2p.

Markets would be particularly impressed if the ECB widened its asset purchase scheme today to buy corporate loans and other risky stuff.

That’s according to a survey by Bank of America Merrill Lynch, here:

Currently, Mario Draghi is mainly buying government bonds. That has driven prices to such record high levels that investors are now paying to hold them, rather than getting a return, because they can be sold onto the ECB.

Thank goodness we have gifs to keep us entertained before Mario Draghi appears.

This is your 60 minute warning..... just one hour to wait until the ECB reveals whether it has cut interest rates at this month’s governing council meeting.

Any other measures may have to wait until Mario Draghi’s press conference, 45 minute later.

Wow. Ireland’s economy grew by a blistering 7.8% last year.

New figures released by Dublin show that Ireland was the best-performing EU country in 2015, for the second year running.

In contrast, the eurozone expanded by around 1.5% last year, while the UK grew by 2.2%.

Amazingly, Irish GDP surged by 2.7% in the final quarter of 2015, as businesses and consumers put its debt crisis woes behind them. Personal consumption was up 3%, suggesting more solid domestic demand.

For all the talk of ‘super’ Mario Draghi, the ECB president cannot fix all the eurozone’s woes.

His job, really, is to keep the monetary system working while Europe’s elected leaders make the tough decisions.

Simon Nixon of the Wall Street Journal makes this point in the Times today:

Olivier Blanchard, the former chief economist of the IMF, has said the ECB should launch fresh stimulus measures today to stimulate growth.

He’s telling Bloomberg TV that the recovery in Europe is too slow.

Blanchard also flagged up that commercial bank profits are being eroded by deeper negative rates (as explained earlier)

Updated

European stock markets have dipped this morning, as investors brace for the ECB decision at 12.45pm GMT.

European stock markets today

All eyes are on the ECB’s Frankfurt HQ, as Mike van Dulken, head of research at Accendo Markets, explains:

This is seen as an opportunity for President Mario Draghi to redeem himself by putting his money (Germany might say otherwise) where his mouth is and deliver the boost to QE that markets were left wanting for in December.

Germany’s Handelsblatt newspaper has already fired a warning shot at Mario Draghi.

They fear he is endangering Germans’ hard-earned savings by hitting banks with negative rates, and by printing more money through QE:

Markets could slide if Draghi falls short

Ilya Spivak, currency strategist at DailyFX, says the euro will soar and shares will slide if Mario Draghi fails to deliver today:

Markets envision at least a 10 basis point reduction [to the deposit rate paid by banks].

If the ECB does not meaningfully exceed their expectations and offer a tangible boost to the size of QE asset purchases, another disappointment is likely.

“Besides sending the Euro higher, such a result will probably hurt risk appetite. This may see sentiment-geared FX like the Australian, Canadian and New Zealand Dollars trade lower alongside share prices while the anti-risk Japanese Yen advances.

Updated

The European Central Bank began its quantitative easing programme a year ago.

Since then, government bond prices have hit record highs, as traders knew they could sell them onto the ECB. Shares, though, have lost ground - hit by global economic concerns, the Greek debt crisis, and even the Volkswagen cheating scandal:

Canadian bank RBC have listed four reasons for the ECB to launch fresh stimulus today:

  • headline inflation has slipped back into negative territory
  • measures of underlying price pressures in the euro area - such as ‘core’ inflation -are also trending lower
  • the ECB’s own staff forecasts are likely to incorporate significant downward revisions
  • inflation expectations in the euro area are providing a worrying indication that the prolonged period of low inflation is beginning to feed on itself.

Updated

Some economists fear Draghi disappointment

Some City analysts are worried that the ECB may under-deliver today.

French bank Société Générale predict that that bank deposit rates will be slashed from -0.3% to -.0.5%, but fear that Draghi’s warchest is running dry:

We expect the ECB to cut the deposit rate by 20bp with some tiering.... There are other options such as a corporate bond purchase programme or expanded collateral eligibility, but these would have limited economic effect

Our main concern is that, whilst the bank will continue to signal its willingness to do whatever it takes, we think the ECB is approaching the effective limit of what it can do.

Toby Thompson of investment manager Brooks Macdonald also fears disappointment, saying:

The ECB is at risk of underwhelming markets by virtue of German intransigence and market over-optimism regarding depth of measures.

Germany’s man at the ECB, Jens Weidmann, doesn’t get a vote at today’s meeting (they take it in turn to sit out). But he’ll still be able to influence proceedings.

Expectations of a rate cut have already hit the euro, as Bloomberg explains:

The euro is the world’s worst-performing major currency over the past month with traders bracing for the European Central Bank’s decision on whether to expand stimulus.

The single currency has depreciated close to 3 percent against the greenback since Feb. 10 as economists forecast the ECB on Thursday will cut its deposit rate from minus 0.3 percent and step up its 60 billion-euro ($66 billion) monthly bond-buying program.

More here: Euro Sinks to World’s Worst Performer as ECB Keeps Bears on Edge

Another great chart, showing how the markets have absolutely certainty that the ECB will slash the bank deposit rate again today.

Two months ago, it was a 50-50 shout, before market turmoil and weak inflation drove up the odds to 100%.

Updated

This is a great chart, showing City economists’ expectations for today’s meeting.

As you can see, everyone expects deeper negative rates (but will it be -0.4% or -0.5%?), but there’s no agreement over the ECB’s QE programme.

That could be a recipe for volatility once the decisions are announced:

The ECB could decide to scrap the deadline on its QE programme (currently March 2017).

It could simply pledge to keep buying assets with newly created money until inflation is back on track, as the Resolution Group’s Duncan Weldon points out:

Capital Economics: Draghi needs to Go Large

Capital Economics reckons Mario Draghi needs to announce something big today.

They are calling for a 20 basis point cut in the deposit rate (to minus 0.5%) and €20bn of extra quantitative easing each month.

The ECB has signalled a further loosening of monetary policy at its forthcoming meeting on 10th March.

And while December’s under-deliverance highlights the risk of another disappointment, the deteriorating economic outlook should persuade the Governing Council to be bolder this time.

Updated

The ECB is also expected to downgrade its growth and inflation forecasts today - another reason for fresh action.

But Stefan Schneider, chief international economist at Deutsche Bank, argues that some economic conditions are actually improving.

Fears of a US recession have eased, he tells Bloomberg TV, while the oil price has also picked up (good for inflation)

The expectations are that Draghi has to deliver something, but we don’t think it will be a dramatic move.

Bankers hit out at negative rates

European bank chiefs are already quietly fuming about the prospect of deeper negative deposit interest rates being announced today.

Bankers hate negative deposit rates (which they pay to the ECB) because they can’t pass them onto consumers. If they did, savers would simply withdraw their money and put it under the mattress.

And two senior bankers have gone public, as the FT’s Claire Jones reports:

Andreas Treichl, chief executive of Austria’s Erste Bank, told the Financial Times that another cut could encourage financial bubbles, hurt economic growth and create “social disparity” by penalising savers.

José García Cantera, Santander’s chief financial officer, added that the banks that would take the biggest hit to their profits if rates were cut again were those least able to bear it.

Mario Draghi knows these concerns, of course. He’s betting that negative rates will weaken the euro, and drive banks into riskier assets.

But this is why some people think a ‘tiered deposit system’ is the way forward, so that banks would pay a lower negative rate on some deposits.

More here: Senior European bankers voice concerns over ECB cut

Updated

Five things the ECB may do today

Here’s a list of options which Draghi and the governing council will be pondering in Frankfurt right now:

  1. Cut bank deposit rates. The ECB currently forces banks to pay 0.3% on money left in its vaults. It is likely to cut to -0.4%, or even -0.5%, to spur banks to lend to the real economy.
  2. Introduce a two-tiered system for bank deposits at the ECB. That would protect banks from the full force of negative interest rates (which eat into their profitability)
  3. Boost quantitative easing. The ECB could raise the amount of government bonds it buys each month, by €60bn to €70bn, or extend it beyond March 2017.
  4. Widen QE. The ECB could start buying corporate bonds, or even shares (unlikely!), with newly created money.
  5. Talk tough. Mario Draghi could reassure the markets by promising that the ECB’s arsenal isn’t empty, and that it could do more.

Updated

Introduction: Where for art thou, Mario?

ECB President Draghi exchanges views during a Monetary Dialogue with the EU Parliament’s Economic and Monetary Affairs Committee in BrusselsEuropean Central Bank (ECB) President Mario Draghi exchanges views during a Monetary Dialogue with the European Parliament’s Economic and Monetary Affairs Committee in Brussels, Belgium, November 12, 2015. REUTERS/Eric Vidal
ECB President Mario Draghi will face the press at 1.30pm GMT Photograph: Eric Vidal/Reuters

Good morning.

Central banking, like Shakespearean acting, relies on great delivery. So Mario Draghi must hope that all’s well that ends well when he announces how the European Central Bank will tackle Europe’s fall back into deflation.

The ECB’s governing council is widely expected to take the plunge into deeper stimulus measures today, at the end of its two-day policy meeting.

Economic growth appears to be stalling, while consumer price inflation turned negative again last month, falling by 0.2%. And eurozone unemployment is still over 10%. Measure for measure, the eurozone isn’t in great shape.

These are classic circumstances for a central banker to ease monetary policy again. And virtually all economists expect fresh action -- such as a new cut to the deposit rate charged which banks pay to the ECB, or a boosted quantitative easing scheme.

Forecasts for the ECB today

But the ECB is in a tricky position. Remember, its headline interest rate is already almost zero, it is already imposing negative borrowing costs on banks, and it is already buying €60bn of assets each month through QE.

And that means investors are nervous. Back in December, Draghi disappointed the markets by not meeting their expectations for more QE. That created quite a tempest, sending the euro soaring (not what the ECB wanted at all).

Draghi’s big priority is to ensure the eurozone’s monetary transmission system is working, so that merchants in Venice (and beyond) can get ready access to affordable credit. So we might get some new measures to prevent negative rates hurting the banking sector.

But no-one really knows, which is why today is so dramatic.

The markets have already had one central bank shock - overnight, the New Zealand central bank cut rates, sending the NZ dollar tumbling.

So will Mario deliver? We find out in five hours time.

  • The ECB decision is announced at 12.45pm GMT, or 1.45pm in Frankfurt
  • Mario Draghi’s press conference begins at 1.30pm GMT.

We’ll also be tracking other events across the world economy, the financial markets and business. That will include a new review of Britain’s (flawed?) energy market, and financial results from UK supermarket chain Morrisons and high street chain Home Retail.

Updated

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