ECB cuts deposit rate deeper below zero and expands bond buying to 80 billion euros a month

The European Central Bank on Thursday cut its deposit rate to minus 0.4 percent and lowered its main refinancing rate to zero, while raising monthly asset purchases from 60 billion to 80 billion euros.

The package goes further than a simple rate move. Investment grade bonds issued by non-bank companies in the euro area will now be eligible for purchase, and the bank announced a new series of long-term loans to lenders that can pay banks for borrowing if they increase lending to the real economy.

The backdrop is stubbornly low inflation. Consumer prices in the currency bloc have hovered around zero for months, pulled down by a steep fall in oil prices, and policymakers have been under pressure to show they still have tools left.

Market reaction was mixed through the session. The euro initially weakened on the headline measures, then recovered after comments at the press conference suggested further rate cuts were not the central expectation. Bank shares, which have been squeezed by negative rates, moved sharply in both directions.

For savers and banks, the message is that negative rates are not a brief experiment. For governments, cheaper borrowing continues. The open question is whether monetary policy alone can lift growth, or whether it is reaching the limits of what it can do without support from fiscal policy.