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ECB Signals Sharp Policy U-Turn With Fresh Stimulus Plans

The European Central Bank signaled a major policy reversal on Thursday, flagging plans for fresh measures to stimulate the eurozone’s faltering economy less than three months after phasing out a 2.6 trillion-euro ($2.9 trillion) bond-buying program, making it the first major central bank to ease policy in response to a global slowdown.

The ECB said it would hold interest rates at their current levels at least through the end of this year–months longer than previously signaled–and unveiled a fresh batch of cheap long-term loans for banks.

The series of policy moves represent a more aggressive response to the economic slowdown than investors had expected.

ECB President Mario Draghi is likely to provide further details at a news conference starting at 08:30 ET, where he is also expected to announce cuts to the ECB’s quarterly forecasts for eurozone growth and inflation.

The ECB is the first major developed country central bank to provide new stimulus at a time when the global economy is softening. The Federal Reserve has paused its march toward higher interest rates in recent weeks but hasn’t signaled any new easing steps.

ECB officials are seeking to shore up an economy that has been rattled by shocks ranging from a slowdown in China to mass protests in France and bottlenecks in Germany’s crucial auto industry. They are threading a careful path between providing sufficient support for the region’s softening economy while avoiding any appearance of panic, which could ricochet through financial markets.

Recent economic data show few signs of a rebound in eurozone growth, even if the outlook appears to have stabilized in parts of the region. Italy’s economy, the bloc’s third-largest, slid into recession at the end of last year, and the region’s inflation rate has fallen to 1.5%. The ECB aims to keep inflation just below 2%.

Investors have already pushed back their expectations for when the ECB might start raising short-term interest rates into the middle of next year.
Source: Dow Jones

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