European Central Bank lowers deposit rate to minus 0.5 percent

Dark clouds cover the sky over the Reichstag building in Berlin Germany Friday Sept. 13 2019. The German government says the country's economy

Rising risk appetite pushed the yen down to 108.15 yen per dollar JPY= .

The U.S. central bank lowered the benchmark federal funds rate in July for the first time in almost a decade, citing "global developments in the economic outlook as well as muted inflation pressures".

The ECB will also cut its deposit rate - the interest paid to commercial banks when they place funds with the central bank - by 0.1 percentage points to a new all-time low of -0.5%, meaning banks incur charges on any balances they keep there.

"We've managed to scale back our pessimism about US-China trade talks, which is a supportive factor for now", said Takuya Kanda, general manager of research at Gaitame.com Research Institute in Tokyo.

The eurozone's main interest rate has remained unchanged at zero. "Treasury yields and dollar/yen look to be too high and are likely to start drifting lower".

The euro rose 0.5% to $1.1065.

For borrowers, though, negative interest rates can be a good thing, because it would likely mean a very low monthly interest cost for home and vehicle buyers.

The bigger-than-expected stimulus will increase pressure on the U.S. Federal Reserve and Bank of Japan to ease policy next week to support a world economy increasingly characterized by low growth and protectionist threats to free trade.

View Markets Insider's homepage for more stories. Markets in mainland China and South Korea were closed for public holidays. Gold futures climbed 0.8% to $1,515.20 per ounce.

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The pound remains vulnerable, however, given the continuing uncertainty over how lawmakers will decide the terms of the UK's divorce from the EU.

Yet there were doubts, even within the European Central Bank itself, as to whether the latest measures - most of the few remaining tools in its monetary policy arsenal - would be enough to stoke a euro zone recovery in the face of a U.S.

The Euro went back and forth wildly during the trading session on Thursday, as the European Central Bank announced that they were cutting rates and that of course have made a decision to buy unlimited bonds.

Like the Fed, the European Central Bank has had to change its stimulus stance as the global economic outlook has grown shakier.

Thursday's moves also infuriated Trump, who just this week called on the U.S. Fed to adopt a negative-rate policy. Most economists expect additional monetary policy easing in October and December. Markets believe there is a near certainty the Fed will cut rates for a second time at its next meeting on September 17-18.

Trump has publicly criticised the Fed for not cutting rates more aggressively, but positive economic data has cast some doubt on the need for extensive easing.

A 10 basis point cut in the ECB's deposit rate to -0.5 per cent was fully expected but the revived bond purchases exceeded many expectations because they are set to run until "shortly before" the European Central Bank raises interest rates.

The BOJ's next policy decision is due September 19.

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