ECB hints at more stimulus over emerging markets
Print Edition
Citing worries about emerging market economies and China, the European Central Bank head Mario Draghi says the bank will need to review its level of monetary stimulus at its next meeting in December.
The remarks opened the door further to expanding the 1.1-trillion-euro (US$1.2 trillion) stimulus program that is meant to raise inflation and boost the eurozone’s spotty economic recovery.
Draghi made it clear that the ECB was also considering other measures, such as pushing the interest rate on bank deposits at the ECB even further into negative territory.
“We are ready to act if needed,” he said yesterday after a policy meeting in Malta.
Draghi said the ECB’s governing council had “a very rich discussion” and was “open to a whole menu of monetary policy instruments.”
He stressed that the exchange rate “is not a policy target,” but said the ECB could consider it because it affected inflation.
Controlling inflation is the ECB’s key job. And by last count, in September, the inflation rate was way too low at minus 0.1 percent annually. That’s a sign of weak demand and can also make it harder for indebted countries and companies to reduce their burdens.
The ECB has already cut its benchmark interest rate to a record low of 0.05 percent. The bank left it there, and has said that’s as low as it can go.
Draghi said, however, that one tool that was discussed yesterday was a potential further cut in the rate charged to banks to leave money on deposit at the central bank. The rate is already negative 0.2 percent. By cutting it further, it could push banks to not hoard money at the ECB but invest or lend it.
The ECB’s stance was not “wait and see,” he said, but “work and be ready.”
The eurozone economy grew 0.4 percent in the second quarter but unemployment remains high at 11 percent.
Draghi said that eurozone demand seemed resilient but that trouble in emerging markets, particularly China, posed risks that could push the bank to act.
The ECB is stimulating the eurozone economy by buying bonds from banks with newly created money, in hopes they will expand credit. The aim is to boost growth and inflation, which is way too low at minus 0.1 percent.
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