European Central Bank Announces New Stimulus Measures to Support Growth
European Central Bank Announces New Stimulus Measures to Support Growth
On March 6, 2025, the European Central Bank (ECB) unveiled a comprehensive stimulus package aimed at bolstering economic growth and countering deflationary risks in the Eurozone. The measures include an expansion of the Asset Purchase Programme (APP) and adjustments to targeted longer-term refinancing operations (TLTROs).
Details of the Stimulus Package
Asset Purchase Programme (APP): The ECB will increase its monthly bond purchases from €20 billion to €30 billion, extending the program’s duration by an additional six months, now set to conclude in December 2025.
TLTRO Adjustments: To incentivize bank lending to the real economy, the ECB modified the terms of its TLTROs, offering more favorable borrowing conditions for banks that meet specified lending benchmarks.
Rationale Behind the Measures
The Eurozone has been grappling with sluggish economic growth, with GDP expanding at an annual rate of just 0.8% in the fourth quarter of 2024. Inflation has remained subdued, with the Harmonized Index of Consumer Prices (HICP) increasing by only 0.9% year-over-year in February 2025, well below the ECB’s target of “below, but close to, 2%.” These indicators prompted the ECB to act decisively to stimulate demand and avert a deflationary spiral.
Impact on the Forex Market
The announcement exerted downward pressure on the euro, as increased monetary stimulus typically leads to currency depreciation. Key movements included:
EUR/USD: The euro weakened by 0.7% against the dollar, with the pair trading at 1.0775, down from 1.0850.
EUR/GBP: The euro declined by 0.5% against the British pound, moving from 0.8320 to 0.8280.
EUR/JPY: The euro fell by 0.6% against the Japanese yen, with the exchange rate shifting from 124.50 to 123.75.
Investors anticipate that the increased liquidity and lower borrowing costs resulting from the ECB’s actions will support economic activity but may also lead to a weaker euro in the short term.
Market Reactions and Outlook
European equity markets responded positively to the stimulus announcement. The Euro Stoxx 50 index rose by 1.5%, while Germany’s DAX and France’s CAC 40 gained 1.3% and 1.4%, respectively, reflecting investor optimism about the potential for renewed economic growth.
The ECB emphasized its readiness to adjust all instruments within its mandate to ensure that inflation returns to its target level. Market participants will monitor upcoming economic data releases to assess the effectiveness of the stimulus measures and the potential for further policy adjustments.
