Mario Draghi signaled at least €700 billion ($906 billion) of fresh aid for the eurozone's moribund economy and left a fight with Germany over sovereign bond purchases for another day.
Pledging to “significantly steer” the European Central Bank's balance sheet back toward the €2.7 trillion of early 2012 from €2 trillion now, Mr. Draghi, the ECB president, on Thursday announced a final round of interest rate cuts and a plan to buy privately owned securities. His mission: to revive inflation in the 18-nation eurozone.
Full quantitative easing as deployed in the U.S. and Japan wasn't enacted amid a split on the 24-member Governing Council, with Bundesbank President Jens Weidmann opposing the new stimulus and others seeking more. The latest round of measures pushed the euro below $1.30 for the first time since July 2013 and sent European bond yields negative.
The steps “probably reflect that President Draghi does not have unanimity, or a large enough majority for quantitative easing,” said Andrew Bosomworth, a portfolio manager at Pacific Investment Management Co. and a former ECB economist. “The ECB is ready to do more if more is needed.”
With eurozone inflation languishing at 0.3% last month, a fraction of the ECB's 2% goal, and Mr. Draghi saying price expectations are worsening, policymakers unexpectedly cut interest rates. The benchmark and deposit rates fell by 10 basis points to 0.05% and -0.2%, respectively.
That might help encourage companies and households to spend rather than save. It could also attract greater participation in a targeted lending program for banks that was unveiled in June and starts this month. Banks can borrow from the ECB for as much as four years at a small premium to the benchmark rate.
Mr. Draghi gave few details on the size or nature of the ABS plan, saying the “modalities” of the program will be announced in October. The ECB will initially target the less risky segment of the market, which collapsed in the wake of the financial crisis after being criticized by politicians and regulators for being opaque. The ECB might consider buying more risky versions if governments provide a guarantee.
“We want to make sure that these ABS are being used to extend credit to the real economy,” Mr. Draghi said. “Today's measures are predominantly oriented to credit easing.”