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.


the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

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

Risks rising in corporate debt market

Drastic deterioration in security across Burkina Faso as 70,000 flee their homes in past two months, UN warns

Tuesday’s Daily Brief: Libya civil war, African displacement, global trade tensions, terrorists’ children ‘secretly detained’, and more

Australia wants to build a giant underground ‘battery’ to help power the nation

Opening Remarks by H.E. Ambassador Yang Yanyi, Head of the Chinese Mission to the EU at the Chinese Fashion Night

Here are 5 reasons why the ocean is so important

CDC advises against gatherings of 50 or more – Today’s COVID-19 updates and analysis

What if big-tech companies became non-profits?

Scores of Rohingya refugee shelters in Bangladesh destroyed by flooding

Does the EU want GMOs and meat with hormones from the US?

Mergers: Commission clears Vodafone’s acquisition of Liberty Global’s cable business in Czechia, Germany, Hungary and Romania, subject to conditions

Barriers to trade: as protectionism rises, EU continues opening up export markets for European firms

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

The Collapse of the Brazilian Health Care System

What matters most to young Europeans?

This ‘hidden killer’ is responsible for one in five deaths, and you might never have heard of it

Tributes for ‘role model’ former UN refugee agency chief, Sadako Ogata

Energy Union: deals on efficiency targets and governance

Dreaming of China

Food finally features in the climate debate. Now what?

The Monetary Union drives Europe into dangerous paths, CoR demands an EMU of regional content

Discussion at Europe House: Brexit & Food

Silk Road Unlimited

‘Humiliation was the worst’; Holocaust survivor at UN, asks world to act with ‘empathy and compassion’

Hydrogen power is here to stay. How do we convince the public that it’s safe?

Landmark agreement will protect 100 European Geographical Indications in China

MEPs approve EU’s spending in 2017

Here are 3 lessons Europe can learn from China’s flourishing start-ups

Heat-resistant crops, ‘green’ infrastructure, can prepare Near East and North Africa to better tackle droughts – UN agency

WEF Davos 2016 LIVE: The health of capitalism won’t be the only worry for those who head for Davos

Eurozone hasn’t escaped the deflation danger

At UN, youth activists press for bold action on climate emergency, vow to hold leaders accountable at the ballot box

These are the countries where it’s still illegal to get an abortion

TTIP: why it is worth not to pull the covers over your head?

Shifting Tides: Policy Challenges and Opportunities for the G-20

In the future, no one should be excluded from healthcare

Athens urged to fast track asylum seekers amid island shelters crisis – UNHCR

Global Citizen-Volunteer Internships

Let’s Learn

Donors must do more to align development finance with climate goals

COP21 Paris: The Final Agreement Adopted-full text

Measles in Europe: infection rates highest in a decade, says UN health agency

Trump ostracized by his party and world elites but still remains in course; how can he do it?

Commission criticised member states on blocking financial transaction tax

Promoting Health in the Brazilian Amazon: one nation but many cultures

UN makes ‘declaration of digital interdependence’, with release of tech report

5 things we get wrong about young people, according to a US study

The Parliament paves the way for the creation of the European Banking Union

‘Proving our worth through action’: 5 things Guterres wants the UN to focus on in 2019

Obama turns the G20 summit into warmongering platform

Almost all businesses expect to face a crisis. And how they deal with them really counts

Fostering defence innovation through the European Defence Fund

European Youth, quo vadis?

How to build deforestation-free supply chains: lessons from Indonesia

There are 3 barriers blocking good menstrual hygiene for all women. Here’s how we overcome them

EU budget 2019 approved: focus on the young, innovation and migration

3 reasons we should all care about biodiversity

European Elections: “Web giants” are urging users to vote

3 charts to help you understand the American shale boom

After globalization what? Europe’s long, straining shake-up post Davos wreckage

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