European Central Bank cuts rates to zero, expands asset-buying programme to boost economy

European Central Bank cuts rates to zero, expands asset-buying programme to boost economy

The ECB surprised financial markets by dropping its main refinancing rate to zero from 0.05 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS nudged up 0.3 percent.

It also expanded its quantitative easing asset-buying programme to €80 billion a month from €60 billion and cut its deposit rate to -0.4 per cent from -0.3 per cent, charging banks more to keep their money with the ECB.

The European Central Bank could pay banks to borrow from it provided they lend on the funds to households and companies, ECB President Mario Draghi said on Thursday, outlining a new loan program meant to boost credit growth.

Expectations were high that ECB policymakers would deliver a telling blow in the central bank's campaign to get inflation rising again and drag the euro zone economy out of the mire after eight years of weak growth.

Frankfurt ended down 2.3 per cent on Thursday, while Paris lost 1.7 per cent and Milan 0.5 per cent. Spain's Banco Popular rose 6.2 percent, topping gainers on the FTSEurofirst, while UniCredit, Intesa Sanpaolo and BNP Paribas all rose sharply.

Investors took less than 90 minutes to go from overwhelmed at the scale of his move to underwhelmed at the stimulus outlook, with the Stoxx Europe 600 Index retreating to close 1.7 percent lower.

The ECB will also release new economic staff forecasts at the news conference which are likely to show inflation this year at zero or even negative, something it has never before predicted for any year.

Away from the European common currency, the dollar was up 0.64% against the yen, changing hands at JPY114.08.

Asian stocks edged up meanwhile, encouraged by the previous day's rally in crude prices and expectations that an aggressive showing from the ECB later could see dovish reactions from the Bank of Japan, Fed, Swiss National Bank and Bank of England which all meet over the next week and a bit.

It also made a decision to add investment-grade euro-denominated bonds issued by nonbank firms established in the euro area to the list of eligible assets that it can buy. Volatile Shanghai stocks.SSEC, however, dropped 2 percent after stronger-than-expected local inflation data was interpreted as a negative for the struggling economy.

The euro climbed against 10 of its 16 major peers on Friday, after surging 1.6 per cent versus the dollar in the wake of Mr Draghi's comments. South Korea's Kospi index added 0.1 percent.