Mario Draghi unleashed his most audacious stimulus package yet,unexpectedly testing the lower bounds of all the European CentralBank's interest rates and expanding its monthly bond purchases by athird. The euro sank and stocks rose.

The 25-member Governing Council, meeting in Frankfurt onThursday, cut the rate on cash parked overnight by banks by 10basis points to minus 0.4 percent and lowered its benchmark rate tozero. Bond purchases were increased to 80 billion euros ($87billion) a month from 60 billion euros, and corporate bonds willnow be eligible. A new series of long-term loans to banks willbegin in June.

The ECB president will hold a press conference at 2:30 p.m.local time to explain the measures.

The package exceeded market expectations for more stimulus andmay signal increasing concern about persistent weakness in consumerprices and a Chinese slowdown. Draghi — who will present neweconomic forecasts — has repeatedly said policy makers are willingto do what's necessary to revive inflation and underpin theregion's upturn.

“This is presumably an example of whatever it takes,” saidStewart Robertson, an economist at Aviva Investors in London, whichmanages about $378 billion in assets. “So far so good. Now let'ssee if it feeds into the real economy.”

Euro Sinks

The euro sank 1.3 percent to $1.0856 at 2:13 p.m. Frankfurttime. The Stoxx Europe 600 Index jumped more than 2 percent.

The focus now shifts to Draghi's explanation of the package andits potential impact on banks. Negative rates have been criticizedfor squeezing bank profitability to the point they curblending.

Investment-grade euro-denominated bonds issued by non-bankcorporations established in the euro area will be included in thelist of assets that are eligible for regular purchases underQE.

The ECB said its new round of targeted refinancing operationswill start in June. The central bank said the interest rate “can beas low as the interest rate on the deposit facility.”

“The word bazooka comes to mind,” said Chris Hare, an economistat Investec Plc in London. “We're looking for more details now onthe TLTRO – exactly how that would work – and also measuresthat would mitigate the impact of negative rates on banks.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.