Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

ECB Officials Signal Intention to Launch Fresh Stimulus

Posted by hkarner - 12. Juli 2019

Date: 11-07-2019
Source: The Wall Street Journal

Minutes for June meeting suggest ECB could cut interest rates or restart its $2.92 trillion bond-buying program

ECB President Mario Draghi had disappointed investors by suggesting the eurozone economy would need to soften further before the bank would act.

FRANKFURT—Top European Central Bank officials signaled at their June policy meeting that they will consider injecting fresh stimulus into the eurozone economy soon in light of weak inflation data and mounting global uncertainties.

ECB policy makers are preparing to act to support the region’s export-focused economy by cutting the bank’s key interest rate, currently set at minus 0.4%, or restarting its €2.6 trillion ($2.92 trillion) bond-buying program, according to the minutes of the policy meeting published Thursday.

“There was broad agreement that, in the light of the heightened uncertainty, which was likely to extend further into the future, the governing council needed to be ready and prepared to ease the monetary-policy stance further by adjusting all of its instruments,” the minutes said. Measures to be considered included rate cuts and fresh bond purchases, the notes said.
Major central banks have shifted their focus toward interest-rate cuts in recent weeks amid lingering international trade tensions and a softening in key emerging markets such as China. Federal Reserve Chairman Jerome Powell signaled in Congressional testimony on Wednesday that the U.S. central bank could cut interest rates as soon as this month.

Investors are watching closely for signals as to how aggressively the ECB could follow the Fed’s lead.

ECB President Mario Draghi had disappointed investors after the June meeting by suggesting the eurozone economy would need to soften further before the bank would act.

Since then, Mr. Draghi has hardened his tone, signaling that fresh stimulus is on the way unless the economic outlook improves. But it wasn’t clear if the rest of the rate-setting committee would support such a move.

The minutes suggest they would. They reveal deep concerns among rate-setters that global uncertainties will weigh on the region’s economy for some time.

The officials highlighted a downward shift in market expectations of future inflation rates, which have fallen “near the previous lows recorded in September 2016.” The ECB has previously used weakening inflation expectations to justify aggressive stimulus measures.

“Inflation was still projected to reach only 1.6% in 2021, which was seen to remain some distance away from the governing council’s inflation aim,” the minutes said. The ECB aims to keep inflation just below 2% over the medium term.

“It was hence considered important for the governing council to demonstrate its determination to act…and to further prepare for adverse contingencies in the period ahead,” the minutes said.

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