FTSE 100 watch: Index extends gains as ECB cuts rates

on Sep 4, 2014
Updated: Apr 9, 2020
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iNVEZZ.com, Thursday, September 4: The FTSE 100 Index continued its advance today, after the European Central Bank decided to cut its main refinancing rate to record low levels, as part of its efforts to tackle low inflation and stimulate the eurozone economy.

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Britain’s blue-chip index, which yesterday reached its highest level in 14 years, was supported by a sharp rise in shares of Scottish insurer Standard Life Plc (LON:SL). The firm’s stock rose more than ten percent following its surprise announcement that it was selling its Canadian business to Manulife Financial Corp (Standard Life share price surges as company sells Canadian business to Manulife ). The company’s share price shed some of its gains in the afternoon session and was trading 6.3 percent higher at 410.50p as of 15:04 BST. As of the same time, the Footsie was up0.27 percent at 6,892.30 points.

**The middle road**
The ECB has taken further steps to combat declining inflation in the eurozone. At its September policy meeting in Frankfurt, the bank decided to cut its main refinancing rate to 0.05 percent from 0.15 percent. The change will come into effect from September 10. The bank also said it had lowered the rate on overnight bankdeposits to -0.20 percent, which means banks pay to park funds at the central bank, and cut its marginal lending facility – or emergency borrowing rate – to 0.30 percent.

In his regular press conference after the meeting, ECB president Mario Draghi announced even more measures to boost inflation and the eurozone economy. Draghi said that the bank would purchase asset-backed securities (ABS) and covered bonds.
“This is quite complex package of measures,” he told journalists. “The purpose is very different from previous programs… the aim is to increase the measures that produce credit-easing… and also to significantly stir the size of our balance sheet towards the dimensions it used to have at the beginning of 2012.”

Under the ABS-buying programme, eurozone banks will sell the ECB their loans and other types of credit that have been packaged together.Purchases will include both newly created and existing ABS, as well as residential mortgage-backed securities (RMBS).
Draghi said that commencing a ‘full-blown’ quantitative easing programme was also discussed at the meeting, with some members of the ECB’s governing council against the move and some in favour. Draghi described the final decision, which won support from the majority of members, as striking the “middle road”.

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