Will ECB win against low inflation by not following Quantitave Easing?

Mario Draghi, President of the European Central Bank (EC Audiovisual Services)

Mario Draghi, President of the European Central Bank (EC Audiovisual Services)

On the 5th of June, the European Central Bank (ECB) decided not to fully deploy all the tools of Quantitative Easing (QE) programme, which showed that the ECB is not yet ready to risk everything in order to deal with low growth and inflation rates. Christine Lagarde, Managing Director of the International Monetary Fund (IMF) said on June 19: “If inflation was to remain stubbornly low, then we would certainly hope that the ECB would take quantitative easing measures by way of purchasing of sovereign bonds”. Does IMF see or predict something that ECB’s officials don’t know?

ECB fears of taking drastic measures

ECB’s sayings that will do whatever it takes to bring growth to the EU and increase medium-term inflation to levels close to 2% haven’t yet materialised. ECB is struggling to avoid the big “guns” of QE which include buying assets to provide banks with more money, to increase liquidity to the market. Furthermore, Mario Draghi, the president of ECB, said to the Dutch newspaper De Telegraaf that the ECB hasn’t yet seen any deflation taking place in matters of prices declining within the EU. Thus, what he is implying is that the European economy doesn’t need for the moment measures like buying government bonds or private sector loans.

ECB’s attempt to bring back growth and higher inflation rates

On the other hand, ECB is hoping to increase inflation by decreasing its key interest rates. The main point that is worth mentioning here is the fact that the deposit interest rates that ECB is granting to banks dropped to -0.1%. That is not something that you see every day. It basically means that banks have to pay the central bank in order to hold their money. That is quite unusual, but it is a way to motivate banks to provide more loans and bring more money to the market.

But this is not beneficial for commercial banks.  By implementing such measures, ECB is telling banks to risk more or keep the money that was intended to be invested to the central bank at their own vaults. Another risk that ECB faces is the possibility that the banks decrease the deposit rate that they provide to their customers’ saving accounts. That is what European savers are more worried about right now even if Mario Draghi said that the measures are only for the rates between the central bank and the commercial banks, not the European citizens-savers.

ECB will not to follow QE

What is ECB waiting for then? Aren’t the inflation rates low enough to justify a fully QE policy? ECB most probably waits to see deflation rates rise up before using all the weapons that has in its arsenal. Is the “fear” of putting a QE policy into force going to work for the good of Europe’s growth? Time will be the ultimate judge in this battle with growth and inflation. The sure thing though is that the IMF is for its own reasons pushing ECB to the path of QE and it is highly likely that commercial banks will lower the deposit rates of their customers’ saving accounts, which will force savers to spend or invest their money elsewhere.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

Stopping antimicrobial resistance would cost just USD 2 per person a year

CDNIFY @ TheNextWeb 2014

EU Council approves visa-free travel for Ukraine and cement ties with Kiev

Refugee crisis update: Commission is struggling alone with little help from EU or G7 leaders

This is how people in Europe are helping lead the energy charge

Quality Internships: Towards a Toolkit for Employers

Malta and Slovakia: serious shortcomings in the rule of law

This robot has soft hands. It could be the future of sustainable production

Love unlimited

Banking package: Parliament and Council reach an agreement

Defence: European Commission paves the way for first joint industrial projects under EU budget

The anti-vaccine movement shows the peril of a post-truth world

Everything you need to know about water

Reform of road use charges to spur cleaner transport and ensure fairness

Protests, violence in Haiti prompts international call for ‘realistic and lasting solutions’ to crisis

It’s time to fulfil the promises made to women 25 years ago

JADE Spring Meeting 2016 highlights

The JADE Spring Meeting is about to begin

European Youth Event 2016 – bridge between youth and policy makers

Contact the Sting

China in My Suburbs

World Population Day: ‘A matter of human rights’ says UN

Cybersecurity needs a holistic approach. Here are three ways to build protection

A Sting Exclusive: “Junior Enterprises themselves carry out projects focusing on the environment”, JADE President Daniela Runchi highlights from Brussels

European Commission reacts to the US restrictions on steel and aluminium affecting the EU

Turkey presents a new strategy for EU accession but foreign policy could be the lucky card

Why carbon capture could be the game-changer the world needs

How telehealth can get healthcare to more people

Two days left until General Data Protection Regulation (GDPR), lots of newsletter opt-outs but does the EU citizen really know?

Can the world take the risk of a new financial armageddon so that IMF doesn’t lose face towards Tsipras?

From glass ceiling to glass cliff: women are not a leadership quick-fix

MEPs vote to limit negative impact of no-deal Brexit on citizens

How tomorrow’s buildings will make you – and the planet – healthier

Mainland Europe adopts Germanic cartel business patterns

UN nuclear watchdog will help verify DPRK nuclear programme, if agreement forthcoming

FROM THE FIELD: How the smell of fresh bread transformed one refugee life

Economic sentiment and business climate stagnate in miserable euro area

The EU Commission lets money market funds continue the unholy game of banks

The power of digital tools to transform mental healthcare

“The Belt and Road Initiative should be mutually beneficial for EU and China and every participating country”, Vice-President Papadimoulis of the European Parliament underscores from European Business Summit 2018

EU unveils plan to accelerate Capital Markets Union ahead of London’s departure from the bloc

Drugs cost too much. There is a better way to fund medical innovation

Make progress or risk redundancy, UN chief warns world disarmament body

Is there a way out of the next financial crisis? Can more printed money or austerity save us all?

Here’s what a Korean boy band can teach us about globalization 4.0

Blockchain can change the face of renewable energy in Africa. Here’s how

From inconvenience to opportunity: the importance of international medical exchanges

Promoting rule of law and fundamental rights in the EU

How can we regulate disruptive technologies?

Parliament backs a modernised EU electoral law

Supercomputing could solve the world’s problems, and create many more

Globally, youth are the largest poverty-stricken group, says new UN report

Risks rising in corporate debt market

Amazon indigenous groups want to create a nature sanctuary the size of Mexico

Unlock the value proposition for Connected Insurance

Managing and resolving conflicts in a politically inclined group of team members

EU budget: Stepping up the EU’s role as a security and defence provider

Mali: UN chief calls for calm as clashes leave over 20 dead in Mopti

Is Erdogan losing game and match within and without Turkey?

The Council unblocks all EU budgets

Italy’s revised budget remains roughly unchanged waiting for Europe’s fury

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s