Mario Draghi will chair his last ECB meeting today and leave the European Central Bank divided like it has never been before. His actions as ECB President will have an impact on the Eurozone long after her has moved on. Some credit him with saving the breakup of the Euro, but history will be the judge if he may have started the total destruction on the it. The economy remains fundamentally weak, the risk of deflation elevated and the fiscal outlook unstable. All this while Draghi has ushered on the era of negative interest rates in the Eurozone.
The European Central Bank (ECB) under President Mario Draghi has announced a massive new stimulus program in order to assist the ailing Eurozone economy. Besides cutting the deposit facility rate by 10 basis points to -0.50%, a fresh round of quantitative easing (QE) was announced. Starting November 1st 2019, the ECB will restart its bond buying program at a pace of €20 billion per month. The QE program is open-ended and will remain in place until inflation reaches the ECB target which currently stands at 2.0%.
Today is expected to be a relatively busy day for the euro. The final inflation data for May in Spain and France will be published in the first half of the day. In addition, the ECB President Draghi plans to speak after the publication of data on inflation in Spain. Investors are concerned primarily with whether Draghi will strike a blow at the euro with his comments, thus reversing the last Thursday’s growth of the single currency.
Today we will start with a simple question: What is potentially the most overlooked weapon in the arsenal of central bankers? The use of interest rate cuts as well as increases is probably the best known tool central banks use. More recently quantitative easing has become a very popular experiment from Tokyo to London and from Frankfurt to Washington. One very obvious tool, but often not viewed as one, is communication. Central bankers use communication as a tool in order to prepare financial markets for what is about to come or to leave room to reverse a decision.
Mario Draghi, the President of the European Central Bank (ECB) does not use the term of tapering when he refers to adjustments to the central banks €60 billion per month quantitative easing program in the form of bond purchases. The consensus for today’s ECB meeting was that the deposit rate facility will remain unchanged at -0.40%, the central bank rate to remain unchanged at 0.00% and that the marginal lending facility will remain unchanged at 0.25%.
The euro dropped on Friday for a second consecutive day in a continued reaction to the European Central Bank's extending its bond-buying program longer than many had anticipated, even as the bank cut the size of the monthly purchases.
Incentives of the European Central Bank are gaining momentum, but if it turns out that current efforts are not enough to accelerate the recovery in the euro area, the ECB is ready to do more, said yesterday the bank's president Mario Draghi.
