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ECB cuts rates and extends QE until March 2017

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The European Central Bank will extend the monthly €60bn asset purchase programme until the end of March 2017.

ECB president Mario Draghi today confirmed quantitative easing will continue “at least or until inflation reaches the ECB’s target of below or close to 2 per cent”.

The ECB has also expanded the range of assets being purchased, to include regional and local government debt.

Draghi said: “We will continue the QE because it worked not because it failed. We want to consolidate something that has been a success.”

However, Draghi has “slightly” cut his inflation forecast for the next two years.

In October eurozone inflation was 0.1 per cent and the expectation is that it will remain at that rate for the final two months of 2015. But Draghi has reduced the inflation expectation for 2016 to 1 per cent, down from the 1.1 per cent predicted in September.

He also lowered the inflation expectation for 2017, from 1.7 per cent to 1.6 per cent.

In addition, the ECB will cut the interest rate on the deposit facility – the rate banks pay to store money with the ECB – by 10 basis points to -0.3 per cent to encourage lending. This will happen from 9 December.

The central bank has also decided to hold its key interest rate at 0.05 per cent.

Draghi’s estimate for eurozone growth for 2015 is 1.5 per cent, slightly higher than the previous prediction of 1.4 per cent.

The ECB has retained its 1.7 per cent real GDP estimate for 2016 but lower the 2017 figure from 1.9 per cent to 1.8 per cent.

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