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The ECB lowered their benchmark rate by 25 bps to a record low 1.00% as they view that the global economy remains in a severe downturn. The central bank also announced that it will begin quantitative easing measures following the lead of other central banks.
President Trichet stated The Governing Council has decided in principle that the Eurosystem will purchase euro-denominated covered bonds issued in the euro area. The detailed modalities will be announced after the Governing Council meeting of 4 June 2009. Indeed, today we saw the BoE announce that it would add another £50 billion to their efforts. President Trichet stated that the measures were intended to help ease funding for companies as they fear that the labor market may deteriorate further. He would go on to say the latest economic data and survey information suggest tentative signs of a stabilization at very low levels, after a first quarter which was significantly weaker than expected. The world economy, including the euro area, is still undergoing a severe downturn, with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010. The committee also views that price stability will return over the medium term but left the door open for future easing as it stated that it hadn't decided if the current rate would be the lowest. The announcement of the non-standard efforts initially sunk the euro, but the single currency has regained its footing as the moves raised optimism for future growth.