The European Central Bank has delved deep into its remaining arsenal of stimulus options, cutting all three of its interest rates and expanding asset-buying to boost the economy and prevent ultra-low inflation becoming entrenched.
In moves that initially pushed the euro 1 percent down against the dollar before recovering, the ECB on Thursday cut its deposit rate deeper into negative territory and increased monthly asset buys to 80 billion euros ($A117.3 billion) from 60 billion euros, above market expectations of an increase to 70 billion.
While the deposit rate was cut 10 basis points to 0.4 per cent, the main refinancing rate was shaved to zero from 0.05 per cent and its marginal lending rate - used by banks to borrow from the ECB overnight - fell to 0.25 per cent from 0.3 per cent.
Hoping to boost lending, consumption and inflation, the ECB said it would also start buying corporate debt and launch four new rounds of cheap loan packages, to be extended by banks to the real economy.
Slashing its 2016 inflation forecast from one per cent to just 0.1 per cent, the ECB said further rounds of ultra-cheap four-year loans to banks would in some cases include extra financial sweeteners for them to take up the offer to pass on to others.
"A bank that is very active in granting loans to the real economy can borrow more than a bank that concentrates on other activities," ECB President Mario Draghi said.
Draghi, judged to have disappointed markets in December with stimulus measures below expectations, said more action was needed because the euro zone recovery risked being dampened by the slow-down in emerging markets.
"With today's comprehensive package of monetary policy decisions, we are providing substantial monetary stimulus to counteract heightened risks to the ECB's price-stability objective," he told a news conference.
"The Governing Council expects key interest rates to remain at the present or lower levels for an extended period of time, and well past the horizon of our net asset purchases," he added, forecasting that inflation would remain negative in the coming months and pick up later this year.
Draghi said, however, that there were limits to how far rates could fall.
"The bottom line ... is that basically more and more the emphasis will shift from rates instruments to other non-conventional instruments," Draghi said.
