ECB moves to prop up struggling eurozone


0

Interest rates in the eurozone will not rise until next year at the earliest, the European Central Bank has signalled amid evidence of a slowdown in the 19 countries using the single currency.

The ECB also said it would start offering cheap loans to banks in September to help them roll over €720bn of funding.

The euro dipped as the main interest rate was left unchanged at 0%.

The ECB also cut its forecast for growth and inflation in the eurozone.

The central bank said rates would remain at their present levels “at least through the end of 2019” rather than its previous guidance of “at least through the summer”.

Mario Draghi, president of the ECB, said economic data showed a “sizeable moderation” in growth.

He said economic growth in the euro area was now expected to be 1.1% this year, as against a previous forecast of 1.7%. Inflation is expected to be 1.2%, down from an earlier forecast of 1.6%.

“Incoming data have continued to be weak, in particular in the manufacturing sector,” he said.

“The near-term growth outlook will be weaker than previously anticipated.”

“While there are signs that some of the idiosyncratic domestic factors dampening growth are starting to fade, the weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year,” said Mr Draghi, who is president of the ECB.


Analysis

Andrew Walker, World Service economics correspondent

The European Central Bank is rolling out the economic artillery again.

A marked slowdown in economic growth – confirmed today in official data as just 0.2% in the final quarter of 2018 – seems to have prompted the bank to take some action.

Not the really big guns, at least at this stage. No cut in interest rates (they are so low already that that might not be realistic anyway) and no revival of quantitative easing.

But the bank is using two tools that do suggest it is becoming more concerned.

One is known as forward guidance, an indication of the likely path of interest rates in the future. They are currently rock bottom and the Bank now says said they are likely to stay that way until the end of the year.

Previously the timescale was through the summer. This guidance is not a promise, but it does tell lenders and borrowers something about when rates most likely to be changed.

The ECB has also announced plans for a new round of what are known as targeted long-term refinancing operations or TLTRO. If you are still conscious after reading that, these are loans made to commercial banks intended to stimulate more lending to households and business.

They are also intended to – as the ECB statement puts it – ensure the smooth transmission of monetary policy. Which means spreading the effect of the low interest rates throughout the eurozone economy.


As well as a slowdown in the eurozone – Italy tipped into recession at the end of last year – Mr Draghi also pointed to the impact of trade wars and other factors.

“The risks surrounding the euro area growth outlook are still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in the emerging markets,” Mr Draghi said.

The lending facility for the banking sector will be known as Targeted Longer-Term Refinancing Operations.

Andrew Kenningham, chief Europe economist at Capital Economics, said the guidance on the next rate rise and the financing for banks was “more accommodative than the markets had anticipated”.

“We doubt, however, that the new measures will be enough to reverse the economic slowdown,” he said.

Source : BBC


Like it? Share with your friends!

0

What's Your Reaction?

hate hate
0
hate
confused confused
0
confused
fail fail
0
fail
fun fun
0
fun
geeky geeky
0
geeky
love love
0
love
lol lol
0
lol
omg omg
0
omg
win win
0
win
BBC

Comments

comments

Powered by Facebook Comments

Choose A Format
Story
Formatted Text with Embeds and Visuals
Video
Youtube, Vimeo or Vine Embeds
List
The Classic Internet Listicles
Open List
Submit your own item and vote up for the best submission
Countdown
The Classic Internet Countdowns
Poll
Voting to make decisions or determine opinions
Ranked List
Upvote or downvote to decide the best list item
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Meme
Upload your own images to make custom memes
Audio
Soundcloud or Mixcloud Embeds
Image
Photo or GIF
Gif
GIF format