New targeted bank loans ‘very credit positive’
by William Watts
European Central Bank President Mario Draghi and his policy-making compatriots delivered a bigger-than-expected stimulus plan Thursday, but also signaled that policy makers aren’t likely to further cut interest rates—sending a mixed signal to investors.
Markets were initially jolted after the ECB not only cut key interest rates and expanded the size and scope of the bank’s quantitative-easing program, but also announced a new round of cheap (in fact, the ECB could pay banks to take the money), long-term loans for eurozone banks—all part of a bid to reflate an economy that’s flirting dangerously with deflation.
Financial markets reacted favorably—at least at first. European banks soared and the euro tumbled. European stocks in general and U.S. stock-index futures also legged higher, while European government bond yields, particularly on the periphery, dived.