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Stories Stories Business ECB enters uncharted territory with new stimulus

ECB enters uncharted territory with new stimulus

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Written by Aldine      June 06, 2014    
 
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The ECB was spurred into action by evidence that growth in the 18-country eurozone is too weak to keep consumer price inflation at a healthy level. The fear is the low inflation will last or, worse still, become an outright drop in prices that, if sustained, can snuff out what little growth Europe has.

Expectations were high for the central bank to show it would finally act to prevent such a scenario after months of hesitation in which the inflation rate kept falling. The last measure, for May, showed inflation was only 0.5 percent, far below the bank's goal of 2 percent.

Analysis Came..

The ECB's 24-member governing council finally struck on Thursday, announcing a package of measures that included interest rate cuts, including lowering one rate into negative territory for the first time. On top of that, it promised billions in cheap loans for banks on condition they lend more, and announced a new program to use financial markets to round up more cash for companies.

Many economists also note the ECB did not do what would have been most effective — buy large amounts of financial assets such as bonds to pump newly created money into the financial system. The move is called quantitative easing. Other central banks such as the U.S. Federal Reserve have done that, but it is more complicated in a currency union with 18 members.

Draghi appeared to leave such action as a possibility, saying "if need be, within our mandate, we aren't finished here."

Analyst Richard Barwell at Royal Bank of Scotland said comments like that mean "expectations of a broad-based asset purchase program will rapidly start to build."

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Location

Epicentre
European Central Bank ,Frankfurt, Germany

Details

Author
BY DAVID McHUGH
Contributor's Comment
The European Central Bank ventured into uncharted territory Thursday with a raft of unusual measures meant to revive the eurozone economy by getting credit flowing to companies and preventing a debilitating bout of deflation.
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