ECB cuts Eurozone interest rate to zero

Further quantitative easing has also been announced...

The European Central Bank has surprised experts by announcing that it is cutting the interest rate across the Eurozone to zero, a record low.

While ECB President Mario Draghi was expected to continue with his negative interest rates policy, the size of the cut represents something of a "Hail Mary" from the Italian as he gives the market exactly what it wanted and prays it will react positively.

It dramatically decreases the main interest rate from 0.05% to zero in what was just one drastic action announced at 12.45pm.

The "big bazooka" plan also includes a cut to the deposit facility rate to -0.4%. This means banks will charge more for cash left unused in electronic vaults instead of lending it to customers.

Elsewhere, quantitative easing remains the name of the game. The ECB is bolstering that programme by €20 billion, bringing it to €80 billion per month, in attempt to force inflation above zero. The ECB will now purchase investment-grade corporate bonds.

In the direct aftermath of the announcement, the euro plunged – a sharp sell-off brought on by shock at the ECB's decision. One euro is now worth 76.5p, down from 77.5p prior to the announcement.

The question now is the longer term reaction.