CRU: Fresh Monetary Stimulus Unlikely to Help Draghing Eurozone Economy

LONDON, Sept. 30, 2019 /PRNewswire/ -- As expected, on 12 September the ECB delivered a package of monetary stimulus measures in response to a deteriorating macroeconomic outlook of subdued inflation and sluggish economic growth.

Key measures announced:

• Deposit facility rate – the interest rate earnt by banks that deposit money with the ECB overnight – cut by 10 basis points, to -0.50%.
• Asset Purchase Programme (or QE) was restarted at a monthly pace of 20 billion EUR from 1 November.
• Forward guidance – was made solely contingent on the state of the economy, stating that interest rates will remain at current or lower levels for an indefinite amount of time, and at least until the "inflation outlook robustly converges to the ECB's target". Previously, forward guidance also included a date-based leg, which was removed in the latest statement.

Two smaller measures were also announced which consist of (a) more favourable conditions at which banks can borrow through the TLTRO-III programme and (b) a two-tiered reserve remuneration system aimed at partially offsetting the side effects of negative interest rates on bank's profitability. 

The rationale for the latest ECB policy

The most notable part of the ECB's announcement was on forward guidance, linking it solely to inflation outturns. This marks a significant departure from the ECB's previous forward guidance, where it stated that "interest rates would not rise before mid-2020". The removal of an explicit time reference is the critical element. It aims at reinforcing the message that the ECB is willing to keep its current accommodative monetary policy stance until the inflation outlook is in line with its medium-term target of "close to, but below, 2%".

President Draghi explained that the change in the ECB's forward guidance stems from the need to prevent inflation expectations to re-anchor at lower levels. Indeed, persistently lower inflation expectations would undermine the ECB's ability to fulfil its mandate of price stability.

Read the full story:

https://www.crugroup.com/knowledge-and-insights/insights/2019/fresh-monetary-stimulus-unlikely-to-help-draghing-eurozone-economy/ 

Read more about CRU: http://bit.ly/About_CRU

About CRU

CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

CRU employs over 280 experts and has more than 11 offices around the world, in Europe, the Americas, China, Asia and Australia – our office in Beijing opened in 2004 and Singapore in 2018.

When facing critical business decisions, you can rely on our first-hand knowledge to give you a complete view of a commodity market. And you can engage with our experts directly, for the full picture and a personalised response.

CRU – big enough to deliver a high-quality service, small enough to care about all of our customers.

SOURCE CRU