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

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

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

‘Every ventilator becomes like gold’ – a doctor’s stark warning from Italy’s Coronavirus outbreak

Medical Education is #NotATarget

Indonesian tsunami death toll climbs over 400 as Government-led relief efforts are stepped up

Supply chains have been upended. Here’s how to make them more resilient

World food security increasingly at risk due to ‘unprecedented’ climate change impact, new UN report warns

Bank resolutions set to remain a national affair

UN Children’s Fund chief condemns ‘horrific’ Kabul bomb attack

‘Terrorist Iranian regime’ must be checked; Saudi Foreign Minister urges financial pressure

UN rights office calls on Zimbabwe Government to end ‘crackdown’ in response to fuel protests

UN agriculture agency digs in to help forests and farms build resilience to climate change

The EU Parliament and the ECB unknowingly or unwillingly fail to protect our financial assets

Korea should adapt its migration programmes to ensure continued success in the face of expected challenges

COVID-19 is a threat to waste pickers. Here’s how to help them

Those who produce food are among world’s hungriest – UN rights expert

Job automation risks vary widely across different regions within countries

Counterfeiters are taking advantage of the pandemic. Here’s how to stop them

As fighting in Libya escalates, so does number of children ‘at imminent risk of injury or death’

10 of Albert Einstein’s best quotes

Draghi: A bridge from Brussels to Berlin

Draghi’s top new year resolution: Quantitative Easing

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

How to future-proof India’s economy

The children’s continent: keeping up with Africa’s growth

How energy infrastructure is shaping geopolitics in East Asia

Protection of transported animals: Parliament establishes inquiry committee

Budget Committee backs €2.3 million worth of aid to help 550 redundant media workers in Greece

Amid pandemic detours, mental health matters

FROM THE FIELD: Liberia boosts efforts to guard against rising seas

Vaccination: European Commission and World Health Organization join forces to promote the benefits of vaccines

Who’s promised net-zero, and who looks likely to get there?

‘Ghost fishing’ is threatening our oceans. Here’s how we can tackle it

Brazil: A strategic partner for the EU

Mental health in the pandemic: it’s no Rubik’s cube

A clean energy future with hydrogen could be closer than we think

These 5 charts show our shifting behaviour around coronavirus

If a virus could sing … Could this musical version of COVID-19 help us defeat the disease?

Venezuela migrant crisis begs a ‘coherent, predictable and harmonized’ response: UNHCR

5 ways students can graduate fully qualified for the Fourth Industrial Revolution

REACT-EU: EU support to mitigate immediate effects of the COVID-19 crisis

The EU stops being soft with 10 Downing Street about Brexit

Europe’s dirty air kills 400,000 people every year

Why the world is not as globalized as you think

“Be aware where you put your I Agree signature on and something else”; now Facebook by default opts you in an unseen private data bazar

State aid: Commission approves €286 million Finnish measure to recapitalise Finnair

Topic: Mental Health in times of pandemic: What can each individual do to lessen the burden?

The European Brain Drain: a truth or a myth?

How data can help mining companies tackle their trust deficit

Algorithmic warfare is coming. Humans must retain control

EU prepares a banking union amidst financial ruins

Efforts to save the planet must start with the Antarctic

How digital identity can improve lives in a post-COVID-19 world

Medical ethics in the age of the social media influencers

Three reasons to be optimistic for the future of Asia

Commission supports normalisation in Greece through activation of post-programme framework

Execution of juvenile offender in Iran ‘deeply distressing’ – UN rights chief

Chernobyl nuclear disaster-affected areas spring to life, 33 years on

Blockchain could boost global trade by $1 trillion

Why rich countries are seeing more poverty

5 charts that explain big challenges facing Italy’s new government

More Stings?

Advertising

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