Jan 25 2019

ECB is soothing as ever

ECB maintained status quo in its rate decision yesterday after bringing the bond-buying program (QE) to an end just last month.  Draghi reaffirmed that the stance would remain constant through summer of 2019 if not beyond, if conditions warrant.  The single currency Euro lost some, post the ECB decision.

As per Eurostat, the region grew at its slowest pace in four years in the third quarter 2018 and earlier this week IMF had expressed concern that the region has exhausted ammunition from a monetary perspective, if growth remains tepid. However Draghi assured that ECB has things under control and has enough instruments if contingency were to hit Euro Zone.

Geopolitical concerns, protectionism, Brexit effect and trade war, have all been affecting Euro Zone much like other economies have come under pressure in the past few months.  Euro Zone has its own internal issues what with lackluster growth in Germany, France and Italy in the last quarter of 2018.  Growth remains a question and stimulus remains essential to keep the internal consumption intact.  ECB recognizes this and hence kept the repurchase program from the maturing bonds in order to maintain liquidity though the QE has come to an end formally.  This will keep the borrowing cost under check for an estimated time frame of 2 years.

Whether QE or an equivalent will have to be unveiled globally, what with global growth fears increasing gradually, is a bigger question!