Euro drops as ECB whets hopes for more stimulus

A euro coin is pictured on US dollar notes. (AFP PHOTO/PHILIPPE HUGUEN)

NEW YORK: The euro slumped on Thursday (Oct 22) after the European Central Bank signalled it could wield additional stimulus to fight persistent ultra-low inflation and weak growth in the eurozone.

After a two-day meeting in Malta, the ECB held its key interest rate steady at a record low 0.05 per cent, as expected, and took no immediate new measures.

But the ECB president, Mario Draghi, said in a post-meeting news conference that the bank would review its monetary policy stance in December, raising expectations of more economic stimulus.

"While the European Central Bank left monetary policy unchanged today investors sold euros aggressively after the central bank sent a strong message to the market that they are not only ready and willing to increase stimulus but actively exploring ways to do so," said Kathy Lien of BK Asset Management.

The euro tumbled more than two cents against the dollar, trading at US$1.111 around 2100 GMT (5.00am Singapore time), its lowest level in more than two months.

Draghi suggested the stimulus boost could include a further reduction in the bank's key interest rates, already at all-time lows.

"Coming into this meeting, it was widely anticipated that the ECB was firm on its rate policy and would only look to ease further via extraordinary measures" such as its ongoing bond-purchase program, said Christopher Vecchio, currency analyst at DailyFX.

"Instead, Mr. Draghi & Co. are flirting with the notion that zero interest rate policies (ZIRP) can easily become negative interest rate policies (NIRP)," he said in a market note.