At a meeting today, the Governing Council confirmed that the interest rate on the main refinancing operations of the Eurosystem will decrease by 5 basis points on 16 March 2016.
It has also expanded its quantitive easing programme by €20bn to €80bn a month starting in April, in a bid to boost the Eurozone economy.
Corporate bonds will now be included in the list of assets that are eligible for regular purchases.
The bank deposit rate will be decreased by 10 basis points to -0.40%, while the interest rate on the marginal lending facility will drop by 5 basis points to 0.25%.
In a press conference Mario Draghi, President of the ECD, confirmed the launch of four 'targeted longer-term refinancing operations' which will offer four-year loans to banks.
The loans could mirror the ECB’s deposit rate which, at -0.4%, means the ECB would effectively pay banks to borrow money.
Calum Bennie, savings expert at Scottish Friendly, said:
“This cut by the ECB is the last thing hard-pressed savers in the UK want to hear. Ultimately, it is likely to impact on the UK base rate which will be reflected on lower savings rates at home.
“The day of zero interest rates on savings could soon be upon us. For younger savers with a long term perspective, now could be the time to dip their toe in the water and put a regular amount in a stocks and shares ISA, although risk is attached.”
Laith Khalaf, Senior Analyst at Hargreaves Lansdown, added:
"The ECB is now plumbing the depths of monetary policy in a bid to stave off the encroaching threat of sustained deflation in Europe. Mario Draghi will be pleased with the immediate fall in the euro, as a weaker currency is a nice way to import a little inflation and make exports more competitive at the same time.
"Stock markets are always partial to a bit of loose monetary policy, and true to form European indices jumped up on the back of the decision to cut rates and bolster QE. Stock markets have enjoyed strong returns over the last seven years, but the bull run has been periodically punctured by fears that prices are too dependent on central banks pumping money into the system, and no-one wants to be left without a chair when the music stops.
"Indeed it’s hard to see even lower rates and more QE in Europe as a positive development. The fact the ECB is still pursuing such extreme monetary policy paints a depressing picture of the European economy, and markets are beginning to question what central banks have left in the locker if the global economy slips back towards recession."
