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

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

How to turn a traditional business into a platform-based success

Not much of a help the new EU Directive on pensions

School closures triple in Central and Western Africa as education comes under fire

How can we prepare students for the Fourth Industrial Revolution? 5 lessons from innovative schools around the world

Business is a crucial partner in solving the mental health challenge

Mountains matter, especially if you’re young, UN declares

This farmer used an age-old technique to save his soil and now his farm is prospering

Finnish Presidency outlines priorities to EP committees

This app uses augmented reality to rewrite ‘herstory’

Why feeding the planet doesn’t have to mean sacrificing our forests

Sudan: UN rights chief alarmed over ‘excessive force’, alleged use of live fire against protestors

The European Parliament x-rays the troika’s doings

South Africa’s cabinet is now 50% women for the first time ever

Here’s how we reboot digital trade for the 21st century

‘Still time’ to stop a ‘bloody battle’ for Libya’s capital, insists Guterres

The future of suicide and depression prevention

A backbencher Tory MP threatens both EU and UK with a no-deal Brexit

Every bite of burger boosts harmful greenhouse gases: UN Environment Agency

What does strategy have to do with a platform approach?

Young activists share four ways to create a more inclusive world

World Cancer Day: Early cervical cancer diagnosis could save lives of over 300,000 women

European Citizens’ Initiative: Commission registers ‘Mandatory food labelling Non-Vegetarian / Vegetarian / Vegan’ initiative’

New Syria fighting represents ‘giant powder keg’, warns aid veteran, as he leaves UN stage

Can the next financial crisis be avoided?

Female leaders warn about the erosion of women’s rights

Three ways batteries could power change in the world

Tools of asset development: Renewable Energy Projects case

3 charts that show how attitudes to climate science vary around the world

Education in Emergencies: EU announces record humanitarian funding for 2019 and launches #RaiseYourPencil Campaign

This Brooklyn farm company is training a new generation of urban farmers

Brexit must not put UK university research at risk

Schengen is losing ground fast revealing Europe’s clear inability to deal with migration crisis

State aid: Commission finds Luxembourg gave illegal tax benefits to Engie; has to recover around €120 million

Meet the Seed Warrior: the man on a mission to rescue India’s rice diversity

Eurozone banks are unable to support real economy’s dawning growth

MEPs list conditions for new EU-Azerbaijan deal

The world wide web is 30 years old. What better time to fight for its future?

The importance of Yellow September and suicide prevention in Brazil

Phone lines open between Ethiopia and Eritrea, and people are calling strangers

UN chief appeals to G7 leaders for ‘strong commitment’ and political will to tackle climate emergency

Children are so hungry in one British town they are eating from bins

Can ECB’s €60 billion a month save Eurozone?

Do academia and banks favour a new Middle Ages period?

Yemen: UN envoy asks Security Council for more support ‘to move back’ to the negotiating table

Donors must do more to align development finance with climate goals

Four ways Europe can become a global innovation leader

FROM THE FIELD: Balancing act for Philippines farmers

EU budget: the Common Agricultural Policy beyond 2020

This team of Saudi women designed an award-winning app to make the Hajj safer

Boris ‘single-handed’ threatens mainland Europe; can he afford a no-deal Brexit?

UN chief appeals for calm as Mali presidential election draws to a close

Amazon fires: Health Effects, Near and Far

Why income inequality is bad for the climate

The best companies to work for in 2020, according to Glassdoor

Ukraine’s Poroshenko implicates NATO in his duel with Putin

We need a global convention to end workplace sexual harassment

Joint EU-U.S. statement following the EU-U.S. Justice and Home Affairs Ministerial Meeting

Combat against devastating effects of tobacco can only be won ‘if the UN stands united’ – UN health official

The EU Parliament backs the ‘Right2Water’ initiative all the way through

The ‘yellow vests’ undermined Macron in France and the EU

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