The economy is rocky and the guns of the European bank are running out of ammunition
Europe’s interest rate is negative, and the ECB has already bought bonds in trillions of euros. However, economic growth is once again sluggish and the bank is limited in its ability to operate the traditional toolbox. Governor Draghi signaled a continued easing policy,
The European Central Bank (ECB) has lowered interest rates to negative territory and bought bonds in trillions of euros to maintain the eurozone economy, and now that economic growth is waning again, the critical question arises: How much ammunition remains in its arsenal? , Unless the bank is more creative about interest rates and buying financial assets.
Bank governor Mario Draghi signaled last Thursday that the bank was considering cutting interest rates and renewing bond purchases, while other major central banks in the world were also considering a lighter monetary policy. For a possible rate hike to the middle of next year.
Draghi told reporters that some of the 25 members of the ECB’s board of governors discussed the possibility of reducing the deposit interest rate that the central bank is paying on banks’ banks (actually receiving) from minus 0.4 percent now. Other governors raised the possibility of renewed asset purchases, which ended in December. Draghi’s verbal signals are one tool that central banks often use: communication with capital markets that can ease financial conditions without doing anything. Other incentives include interest-rate cuts, the purchase of sovereign bonds and more, and long-term low-interest loans to banks (TLTROs), analysts said.