The European Central Bank can cut interest rates further but isn’t likely to, Mario Draghi said after unveiling stimulus on Thursday that brought borrowing costs to record lows, expanded asset purchases and offered a borrowing subsidy to lenders.

“It’s a fairly long list of measures, and each one of them is very significant and devised to have the maximum impact in boosting the economy and the return to price stability -- we have shown we are not short of ammunition,” the ECB president told reporters in Frankfurt after a two-day meeting of the Governing Council. “From today’s perspective, we don’t anticipate it will be necessary to reduce rates further.”

The steps mark a dramatic expansion of the central bank’s stimulus program after a disappointing remodeling was panned by investors in December. The intensification of the fight to prevent the 19-nation euro area’s lackluster economy from slipping into a deflationary spiral came just days after data showed the inflation rate is once again below zero despite a whole year of quantitative easing.

The euro whipsawed as Draghi spoke, falling as he repeated guidance that rates can go lower, and then strengthening as he explained that more cuts might not be needed, given the breadth of the ECB’s measures. That package included a 10 basis-point cut in its deposit rate to minus 0.4 percent, a surprise drop in the benchmark to zero, a pledge to buy corporate debt as part of 80 billion-euros ($88 billion) of monthly QE purchases -- 20 billion euros more than at the moment -- and four more multi-year lending operations.

The single currency was 1.2 percent stronger at $1.1126 at 4:10 p.m. in Frankfurt, after falling as much as 1.6 percent earlier.

Even though the central bank is increasing the amount that lenders pay when they park funds overnight, Draghi said the Governing Council decided against introducing a tiered deposit rate that could shield banks from the full effects.

“The final decision on not having a tiering system, was not only the desire not to signal that we can go as low as we want, but also the complexity of the system,” Draghi said. “The Governing Council is increasingly aware of the complexity that this measure entails.”

Bank executives have railed against the entrenchment of negative rate policies at the ECB and elsewhere, arguing that they depress profits and could end up being counterproductive.

“Negative rates are killing the banks but they may think it is worth it if they can help growth,” said Erik Nielsen, chief economist at UniCredit Bank in London, adding that it is “good news” that the ECB has decided to buy corporate debt. “For QE to be effective, they have to go out the risk curve.”

David Fuller's view

The opening quote in the paragraph immediately above may explain why market optimism following Draghi’s comments was sharply reversed a few hours later.  Similarly, a dip in the Euro to €1.0822 was reversed into a gain at €1.1218, which did no favours for the Eurozone’s tepid stock markets.  However, Draghi is a brilliant central banker and can prevent European banks that would like to loan from being damaged by his latest interest rate cuts.   

Needless to say, today’s frenzied market action will do little to reassure investors that all is well.  After all, no one is relaxed in a crowd when standing next to people who are either talking on mobile phones or showing symptoms of Tourette’s syndrome. 

Masochists could ponder all day long on whether radical monetary policies are good or bad for GDP growth and the markets.  There may be no definitive answer.  Perhaps we should just conclude that this policy experimentation would not be occurring if all was well in the financial world.  At least neither Mario Draghi nor any other prominent central banker is trying to assassinate stock markets in 2016 by raising interest rates sharply.  Low rates and extra liquidity are good for most companies, if not banks. 

Lastly, I would not criticise central banks for today’s tepid GDP growth.  After all, they did not create the severe financial crisis of 2008.  Accommodative monetary policies cushioned downside risk, I maintain.  Meanwhile, where is the fiscal spending that central banks have asked for?