The ECB's toolbox

Will Mario Draghi and the ECB be forced to take further measures?

It's as if the European Central Bank has ploughed through its toolbox and come out with a bunch of policies. But, are any of them significant enough to defeat the spectre of deflation?

The most eye-catching rate cut was taking the deposit rate into negative territory for the first time. It now costs commercial banks -0.1% to deposit money with the ECB.

However, since only about 29bn euros are deposited with the central bank, how much impact could even deterring all of the deposits make to increasing the money circulating in the economy? Cutting the main interest rate to 0.15% will also help, but for banks making loans cutting rates by 0.1% isn't likely to be a major factor.

Second, the ECB is also doing a small bit of quantitative easing - printing cash to buy bonds. Under the Securities Markets Programme, it had bought some Irish, Greek, Italian, Spanish and Portuguese government bonds during the height of the euro crisis to stabilise bond markets. But, it had sterilised them, meaning that the ECB withdrew the equivalent amount of cash from the economy so it wasn't QE and wouldn't offend those who think that it crosses the line into monetising government debt.

The ECB now won't sterilise so it's the equivalent of injecting 165bn euros of cash. It's a quietly radical move for the central bank amidst today's flurry of announcements. It also paves a small step towards fully fledged QE.

The biggest cash injection is again via banks. The ECB will make cheap bank loans available, including a new facility that will target loans to the real economy called Targeted LTRO. The latter will offer up to an estimated 400bn euros of cash to banks that is aimed at getting credit into the real economy. This is similar to the Bank of England's Funding for Lending scheme.

In terms of total cash that's being injected, it's not negligible but also not exactly massive. This is why ECB president Mario Draghi says that there is still more to come. Buying assets - asset-backed securities - is being discussed as is leaving the door open to QE.

The euro has already regained the ground that it lost within hours of the new measures being announced. It's a sign that markets doubt the scale of the ECB's monetary easing is enough to be effective to counteract deflation. If not, then QE may well be next.