Media Moves

Coverage: Eurozone economy continues stumbling, ECB ready to cut rates further

July 26, 2019

Posted by Irina Slav

The European Central Bank is ready for further interest cuts as the eurozone economy fails to pick up despite ongoing efforts.

 

William Watts had the news for MarketWatch:

The European Central Bank on Thursday made clear it stands ready to cut rates and deliver “highly accommodative” monetary policy, including additional asset purchases, in its effort to push stubbornly low inflation back toward its target amid signs of deteriorating economic conditions in the eurozone.

However, investors appeared to take the statement and subsequent remarks by European Central Bank President Mario Draghi with a grain of salt, lamenting a lack of clear-cut details of policy plans. The euro initially dived following the statement, while European bonds rallied, pushing down yields. Those moves were reversed during Draghi’s news conference.

“Policy makers have clearly not yet made up their mind on exactly what to do,” said Jack Allen-Reynolds, economist at Capital Economics, in a note. “We still think that they will cut the deposit rate to -0.5% in September [from -0.4%]. But by October, we suspect that they will have reached a consensus to relaunch QE, probably with a greater weight on corporate bonds.”

CNBC’s Silvia Amaro noted the central bank will not, however, hurry with rate cuts:

The central bank said it expects its key interest rates to remain “at their present or lower levels” at least through the first half of 2020, updating the wording on previous statements and suggesting a rate cut could be on the horizon.

ECB President Mario Draghi said at a following press conference on Thursday that “a significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favorable and support the euro area expansion.”

The bank also signaled that there could be additional measures to stimulate the euro zone economy. It said it was examining options, “such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”

AP reported ECB President Mario Draghi had warned some members of the sing-ecurrency area needed to spend more:

Draghi said Thursday that if the economy worsens “fiscal policy would become of the essence.” He said that countries that are financially shaky should reduce their deficits but that those that can should look at how their spending could support growth.

He said that “monetary policy has done a lot to support the euro area.” Draghi did not mention any particular country but Germany, the largest eurozone member, has been running budget surpluses amid calls from some economists to spend and invest more.

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