With deflation in the Eurozone persistently low and well below target and growth, well, putting it kindly; tentative, it had been widely expected that the European Central Bank would act to make its monetary policy even more accommodative. This was expected to be within the scope of its asset purchase programme which sees €60 billion a month used to buy bonds. In the event, and to the surprise of analysts, the ECB both extended the scope and duration of its QE programme, extending it until at least March 2017 and increasing it to €80 billion a month, but they also cut interest rates from 0.05% down to 0%. In addition, the “penalty” for having funds on deposit with the ECB was increased from -0.3 to -0.4%; a move intended to encourage banks to lend funds to business.

There was some speculation that an intention of the ECB’s move was to weaken the Euro, thereby making Eurozone exports cheaper and, hopefully, more attractive in importing markets. This is probably unlikely as central banks (with the notable exception of the Swiss National Bank) long ago recognised that direct intervention in a currencies value tends to be horribly expensive and the benefits short-lived. The market drives currency prices: the Euro bought 145 Yen at the start of 2015, concerns about the Chinese economy and the oil price have driven that down to 122 earlier this year with a current value hovering around 127 Yen. Over the same time period, it eased from $1.20 to $1.10. Consequently, if the ECB want to see a weaker Euro, it will be achieved by monetary policy rather than more direct means.

The markets initially rallied strongly on the ECB news, but comments by the ECB President, Mario Draghi, which suggested that a further rate cut into negative interest rates was not on the cards caused the Euro to appreciate and the stock markets to fall back to losses. As with most things, time will tell if these latest measures will do the trick and stimulate stronger growth and inflation figures.