ECB announced to cut deposit facility rate by -10bps to -0.50%. Main refinancing rate and marginal lending facility rate are kept unchanged at 0.00% and 0.25% respectively. A two-tier system for reserve remuneration will also be introduced, with part of banks’ holdings of excess liquidity exempted from negative deposit rate.
Forward guidance is also changed to “The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”
ECB will also restart asset purchase program at EUR 20B per month, starting November 1, without any specified end date.
EUR/USD drops notably after the release and should be heading to retest 1.0926 low.