ECB boosts stimulus measures, does not cut rates

European Central Bank chief Christine Lagarde surprised investors today by unveiling a stimulus package, signaling that she expects governments to take on much of the burden for supporting the region’s economy that is heavily damaged by the coronavirus outbreak.
The bank voted to hold its target interest rate unchanged. Instead, it said it would offer loans to banks at interest rates as low as 0.75% and buy more eurozone debt in an effort to mitigate the economic shock of the pandemic. Under the new measure, lenders will be permitted to operate with less capital than the watchdog usually demands.
“Together with the substantial monetary policy stimulus already in place, these measures will support liquidity and funding conditions for households, businesses and banks and will help to preserve the smooth provision of credit to the real economy”, Lagarde said.
The measures did not succeed to stop the fall in stock markets, after US president Donald Trump last night banned travel from most of Europe. The ECB said that despite its temporary relief, banks should continue to pursue adequate policies for identifying bad loans.
“The coronavirus is proving to be a significant shock to our economies. Banks need to be in a position to continue financing households and corporates experiencing temporary difficulties”, Andrea Enria, chair of the ECB supervisory board, said.
The bank added that it expects banks to use the positive effects coming from its capital measures to support the economy rather than increase investor dividends or staff bonuses.