The European Central Bank sent its strongest signal yet that monetary support for the euro-area economy will be stepped up after the summer break, with lower interest rates and renewed asset purchases on the table.

The euro slid and bonds rallied on the ECB’s move, which reflects the euro area’s severe slowdown amid global trade tensions. Manufacturing is contracting and inflation is well below the ECB’s goal. Bank shares rallied as policy makers said they’ll consider measures to offset the squeeze on lenders’ profitability from negative rates. President Mario Draghi will explain the decision at 2:30 p.m. in Frankfurt.

The Governing Council said it expects rates to stay at present levels “or lower” through at least the first half of 2020. The deposit rate was held at a record low of minus 0.4 per cent for now. The council also signaled it will restart its bond-buying program if needed.

“The Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”
-- ECB policy statement

Major central banks around the world are turning dovish as risks from trade protectionism to Brexit and a U.S.-Iran showdown hit economic confidence. The Federal Reserve is expected to cut interest rates next week, and the ECB is changing tack just months after it ended quantitative easing and started preparing to exit extraordinary stimulus.

The euro was down 0.2 per cent at US$1.1121 at 1:54 p.m. Frankfurt time. The yield on German 10-year debt fell to a record low of minus 0.41 per cent.

Draghi’s push comes three months before his eight-year term ends and he hands over to Christine Lagarde, the former International Monetary Fund chief. Economists and investors predicted he would wait until the next meeting in September before adding stimulus, giving time to see the Fed’s decision and to update the ECB’s own economic projections.

Economists surveyed by Bloomberg predict that officials will cut the deposit rate by 10 basis points in September, and announce a new round of QE starting in January and running throughout 2020.

Draghi said last month that the euro zone will need more stimulus if the economic outlook doesn’t improve. While data since then has been mixed, some of the signs are grim. A report on German business confidence published earlier Thursday showed the weakest sentiment in more than six years and the lowest expectations since 2009.

Inflation continues to run well below the ECB’s goal of just under 2 per cent, and market-based measures suggest consumer-price growth is unlikely to pickup any time soon. Industrial demand and production are falling as automobile producers and suppliers grapple with slowing demand from the key market of China.

German manufacturing is in its deepest slump in seven years. Auto parts maker Continental AG cut its estimated profit margins on Tuesday to reflect expectations of a significant slowdown in global vehicle output. Chemical producer BASF SE also lowered targets because of the sector’s stagnating growth figures.

The geopolitical climate will also remain a challenge. The yearlong U.S.-China trade war, the possibility of a disorderly British departure from the European Union on Oct. 31 are also contributing to the headaches.

--With assistance from Piotr Skolimowski, Kristie Pladson, Brian Swint, Fergal O'Brien, Catherine Bosley, Lucy Meakin, David Goodman, Jill Ward, Zoe Schneeweiss, Chad Thomas, Iain Rogers, Lukas Strobl, Alexander Kell, Craig Stirling, Olivia Konotey-Ahulu, Kristian Siedenburg and Catarina Saraiva.