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Mario Draghi Takes European Central Bank on Unexpected Easing Path

NEW YORK (TheStreet) -- Investors knocked down the value of the euro as the European Central Bank lowering of interest rates move today is more than they expected. Meanwhile, economists say a proposed ECB three-year program to buy asset-backed securities falls short.

The European Central Bank Thursday lowered all three of its main interest rates by 10 basis points. Its benchmark rate was reduced to 0.05% and the deposit rate was lowered to minus 0.2%.

ECB President Mario Draghi stated that the governing council is reviewing a program to purchase up to 500 billion euros worth of asset-backed securities over three years. The purchasing plan, he said, had not been finalized and would be presented at the October meeting of the bank.

The market response was immediate as the euro dropped below $1.30 for the first time since July 2013. At 2:45 p.m. in New York, the value of the Euro was trading at $1.2942. Investors seemed to believe that Draghi and the ECB had moved to loosen up and this was seemingly more than they had expected.

However, in another circle, economists were disappointed that the program fell short of the board-based, extensive large-scale purchases of government bonds similar to the program of quantitative easing that the Federal Reserve has been conducting over the past five years.

Draghi has never seemed enamored with the idea of quantitative easing. He has resisted being pushed "over the brink" when it comes to such a massive program that is pre-programmed into the operating behavior of the central bank. He let it be known that there are a few members of the governing council that oppose buying ABSs.

This may be because Draghi faces a different problem from that faced by the Federal Reserve. A part of Ben Bernanke's justification for creating the Fed's quantitative easing program, although it did not get as much attention as the need to get the economy growing again, was the fear of a banking system collapse.


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