By Laurie Laird
FRANKFURT (MaceNews) – The European Central Bank signaled its intention to loosen monetary policy in response to the slowing euro zone economy, adding the possibility of lower interest rates to its forward guidance and pledging to examine a new round of quantitative easing.
In a statement issued after Thursday’s governing council meeting, the ECB promised to maintain borrowing rates at “their present or lower levels” through the first half of 2020. The bank made no reference to easier rates in the statement following the June meeting.
The more dovish tone from the ECB follows disappointing euro zone manufacturing data released earlier in the week, with the euro zone purchasing managers’ index falling to its lowest level in more than six years, and the persistent failure of inflation to reach the Bank’s target of an annual rate of close to, but below 2%.
“The bottom line … is that we don’t like what we see on the inflation front,” Draghi told reporters after the meeting. He also expressed concern about recent weakness in euro zone factory output, noting that conditions are “getting worse and worse in manufacturing.”
However, the governing council did not consider an immediate rate cut at Thursday’s meeting. “We decided we want to see the next projections before taking action,” said Draghi.
The ECB’s main refinancing rate remains at 0.0% and the deposit rate at -0.4%. The Bank did announce a plan to assess a “tiered system for reserve remuneration” to ease the burden on euro zone banks which incur costs to park deposits at the ECB with interest rates below zero.
But given the continuing softness in price pressures, the governing council did discuss the merits of shifting its inflation objectives. It’s “an important change, but we want to think about it,” said Draghi, adding that “we don’t expect permanently-low inflation.”
The ECB also announced plans to examine “options for the size and composition of potential new net asset purchases,” without specifying a time frame in which to implement such measures. But analysts believe a stimulus package is likely before Draghi leaves office at the end of October, giving way to former International Monetary Fund chief Christine Lagarde, a leader Draghi termed an “outstanding president of the ECB.” Draghi will chair two governing council meetings — on September 12th and October 24th — before stepping down.
While governing council members reached “a broad convergence of views on the current outlook,” particularly on the resilience of the labour market, Draghi admitted that forthcoming stimulus measures did not receive unanimous support. “Whenever we have a package so complex as this, you would expect different people would have different views.”
— Courtesy of MT Newswires