The economic slowdown and weak Inflation force Europe’s monetary authorities to Act. A further easing of monetary policy is in the room. Increases in interest rates in the Euro area for the foreseeable future, off the table.
Still, the monetary easing is pushed. But in September, it is likely to be so far. Then, the ECB plans a package of measures. ECB President Mario Draghi justified this attitude of the governing Council, with the medium-term Outlook for Inflation: “We do not like what we see,” he said and pointed to the still low rate of price increase. The had located in the Euro area at 1.3 percent.
The ECB defines price stability – and this is its most important monetary policy objective in the case of a medium-term inflation rate of below but close to two percent.
Gloomy Prospects
But Inflation is not likely to increase if the economic Outlook deteriorate further. And out of the data: for example, the important German ifo business climate index of 97.5 slipped yesterday on 95.7 per cent. The ECB does not look much different, Draghi pointed to the risks posed by the trade conflicts, and the now higher probability of a hard Brexit.
The ECB, however, decided to act, it has appointed committees with the preparation of a complex package of measures. This could include the reduction of the Deposit interest rate, but also a new bond-buying program.
Today, Mario Draghi has headed for the penultimate Time, a governing Ratssitzuing, starting in October, this makes his successor.
Germany must finally take action
The monetary policy have done much to support the Euro zone, Draghi said, and you do, as you can see on the plans. “But if the prospects continue to be so bad, it is the budgetary policy of the member States,” he said once more, but with growing emphasis,
He spoke clearly to Germany and Italy, which should cushion the impact through fiscal policy, the risks. After all, both countries feel the slowdown in their industries significantly.
The banks relieve
Higher, punitive interest rates on deposits of the ECB, the banks will initially meet in the Euro area, the German money houses have paid in the past year, 2.4 billion Euro of penalty interest rates to the ECB, money that they would rather invest elsewhere.
Therefore, the governing Council will also consider options, such as by a stepped interest rate, the impact on the banks could mitigate.
Mixed Echo
“This will increase the acceptance of monetary policy,” says Uwe Burkert, chief economist at the Landesbank Baden-Württemberg. “The economic slowdown in the Euro area, the ECB has no other choice than, a more expansionary monetary policy”, is Marcel Fratzscher, President of the German Institute for economic research is convinced.
It is to be welcomed that the governing Council had lowered the key interest rates, said, however, Friedrich Heinemann, from the ZEW Institute for economic research in Mannheim. Again, thinking about acting reflected and left: “An interest rate move would have exacerbated the concern about Europe’s economy due to the signal function may be even,” he said.
Christian Ossig, chief Executive of the Federal Association of German banks, refers to the risks and side effects of extremely loose monetary policy. Would continue to increase.
When Christine Lagarde follows in October to Mario Draghi at the ECB-tip, she is the mistress of the very cheap money.
The money remains cheap
However, most observers are following this Council meeting, the ECB will ensure that interest rates will remain low for a long time. For savers, this means that anyone who wants to achieve a return, you must go to the risk. The risk-free investment opportunities, such as day – or fixed Deposit or the purchase of German government bonds, after deduction of inflation, the funds rate on the accounts melt.
However, the ECB participates in the purchase, is important, the ECB President Draghi made yesterday again clear that more people have work. Because of the low interest rates and loose monetary policy meant that consumers could cheaper the fault, that real estate loans are “extremely cheap”, but also companies very cheap, could be used to Finance, said the chief economist, ING Germany, Carsten Brzeski, in the Germany radio.
Goodbye, so nothing New
This is likely to remain after the end of Draghi’s term at the end of October so, if his designated successor, Christine Lagarde takes office. The time of their appointment, the governing Council welcomed yesterday. You will be an outstanding ECB President, showed Draghi is convinced. Asked whether he wanted to be her successor at the IMF-top, he waved a hand. For this, he is not available.