ECB constitutes a new stimulus to rejuvenate Euro Zone Economy

The European Central Bank (ECB) announced stimulus measures to rejuvenate the Euro Zone economy which is deteriorating.

ECB president Mario Draghi told this at a news conference on Thursday. The overnight deposit rate was cut from -0.2% to -0.3%, to push banks to lend instead of parking money at the ECB. The main measures taken were Quantitative Easing and Bond buying.

The ECB also extended its monthly €60bn stimulus programme by six months to March 2017, but left its main interest rate on hold at a record low of 0.05%.

The reason for these measures was low inflation, which resulted in the constant falling of prices. The cut in the interest rate on overnight bank deposits means that banks in effect pay more to the ECB for holding their reserves. The policy is designed to make it more profitable for banks to offer loans to consumers and businesses, ensuring a free flow of money.

The decreasing prices of the oil in recent times was also the reason for low inflation. The ECB is tackling low inflation, currently 0.1% and a potential obstacle to stronger growth.

Inflation in the Eurozone has been below zero - that is, prices were falling - as recently as September. This has been because of falls in international energy prices, particularly crude oil.

Mr. Draghi told the news conference that Eurozone inflation for 2016 is expected to reach 1% rather than the 1.1% previously forecast. For 2017, inflation is set to reach 1.6%, down from the previous prediction of 1.7%.

However, many analysts were underwhelmed by the news and had forecast tougher measures. They said that an extension of QE was needed to tackle prolonged low inflation and get it back towards the ECB's 2% target.

The Euro which has been weakening suddenly surged against the dollar after the announcement.  rising more than two cents to above $1.08.