ECB Cuts Rates, Announces Stimulus to Combat Low Inflation

Mario Draghi Says New Programs Will Be Launched Next Month.

The European Central Bank surprised financial markets with a cut in interest rates and new stimulus plans despite opposition from Germany’s powerful central bank, underscoring its urgency in keeping too-low inflation from derailing the eurozone’s weak economy.

The decisions on Thursday pummeled the euro and boosted European equity and bond prices. They also highlighted the increasingly diverging paths between central banks in the U.S. and U.K., which are eyeing tighter policies, and the ECB and other central banks in Continental Europe that are ramping up their stimulus efforts.

The U.S. and U.K. have had more vigorous, jobs-rich expansions than the eurozone. Their inflation rates are also closer to the 2% pace that major central banks consider optimal for their economies.

ECB President Mario Draghi detailed a litany of worrying developments that compelled the central bank to act, from stagnant growth to weakening inflation.

“In August, we see a worsening of the medium-term inflation outlook, a downward movement in all indicators of inflation expectations,” he said at a news conference. “Most, if not all, the data we got in August on GDP and inflation showed that the recovery was losing momentum.”

Also Thursday, Germany’s finance minister Wolfgang Schäuble told lawmakers that his country—the eurozone’s largest economy—may miss its 1.8% growth target for this year instead of exceeding it as he had predicted two months ago, his party’s parliamentary leader said.

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