From the FT
ECB cuts rates and tells governments to act
Fresh stimulus package for eurozone as growth forecast downgraded
European Central Bank (ECB) President Mario Draghi speaks at a news conference on the outcome of the meeting of the Governing Council, in Frankfurt, Germany, September 12, 2019. REUTERS/Ralph Orlowski
ECB president Mario Draghi said the eurozone faced 'more protracted weakness' than previously thought © Ralph Orowski/Reuters
The European Central Bank has announced its biggest package of rate cuts and economic stimulus in three years as President Mario Draghi warned governments that they needed to act quickly to revive flagging eurozone growth.
The ECB cut interest rates further into negative territory and revived its contentious €2.6tn programme of buying bonds for an unlimited period, in the latest sign of concern over the health of the global economy.
It also eased lending terms for eurozone banks and offered them tiered interest rates in a bid to ease the pressure on their lending margins.
The stimulus was immediately seized upon by US President Donald Trump, who demanded that the US Federal Reserve join the round of central bank rate cuts when it meets next week.
“European Central Bank acting quickly,” Mr Trump tweeted. “They are trying, and succeeding, in depreciating the euro against the VERY strong dollar, hurting US exports . . . And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”.
Now is the time for fiscal policy to take charge
Mario Draghi
In response, Mr Draghi said: “We have a mandate. We pursue price stability. And we don’t target exchange rates. Period.”
He also stressed that the eurozone needed tax cuts and more spending to stave off a fresh crisis.
“Now is the time for fiscal policy to take charge,” said Mr Draghi, who will finish his eight-year term as ECB president and hand over to the former IMF managing director Christine Lagarde at the end of October.
The decision by the ECB initially pushed the euro lower, but that was shortlived. Within hours, the currency was sitting 0.3 per cent higher on the day against the dollar, at $1.104.
The eurozone faced “more protracted weakness” than previously thought, mainly because of the global trade slowdown, Mr Draghi added. The ECB cut its forecast for growth in the 19-member single currency zone this year by 10 basis points to 1.1 per cent, and by 20 bps to 1.2 per cent for 2020.
It also lowered its forecast for inflation by 10bp to 1.2 per cent this year, and by 40bp to 1.0 per cent next year. In response, the ECB signalled that interest rates would stay lower for longer than it had previously expected, changing its forward guidance. It had previously said that interest rates would not rise before mid-2020.
Reinhold von Eben-Worlée, managing partner of 160-year-old German firm Worlée and president of Germany’s Association of Family Enterprises, hit out at the ECB’s decision, saying that QE had “led to serious distortions and should be terminated”.
“Negative interest rates have led to distortions on the asset markets,” he said. “The real estate bubble and eroding pensions are direct consequences of an excessive monetary policy.”
Andrew Kenningham, chief Europe economist at Capital Economics, said: “It remains doubtful that this will do much to reboot the eurozone economy let alone achieve the near-2 per cent inflation target.”
A graphic with no description
Additional reporting by Joe Miller and Richard Milne
ECB cuts rates and tells governments to act
Fresh stimulus package for eurozone as growth forecast downgraded
European Central Bank (ECB) President Mario Draghi speaks at a news conference on the outcome of the meeting of the Governing Council, in Frankfurt, Germany, September 12, 2019. REUTERS/Ralph Orlowski
ECB president Mario Draghi said the eurozone faced 'more protracted weakness' than previously thought © Ralph Orowski/Reuters
The European Central Bank has announced its biggest package of rate cuts and economic stimulus in three years as President Mario Draghi warned governments that they needed to act quickly to revive flagging eurozone growth.
The ECB cut interest rates further into negative territory and revived its contentious €2.6tn programme of buying bonds for an unlimited period, in the latest sign of concern over the health of the global economy.
It also eased lending terms for eurozone banks and offered them tiered interest rates in a bid to ease the pressure on their lending margins.
The stimulus was immediately seized upon by US President Donald Trump, who demanded that the US Federal Reserve join the round of central bank rate cuts when it meets next week.
“European Central Bank acting quickly,” Mr Trump tweeted. “They are trying, and succeeding, in depreciating the euro against the VERY strong dollar, hurting US exports . . . And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”.
Now is the time for fiscal policy to take charge
Mario Draghi
In response, Mr Draghi said: “We have a mandate. We pursue price stability. And we don’t target exchange rates. Period.”
He also stressed that the eurozone needed tax cuts and more spending to stave off a fresh crisis.
“Now is the time for fiscal policy to take charge,” said Mr Draghi, who will finish his eight-year term as ECB president and hand over to the former IMF managing director Christine Lagarde at the end of October.
The decision by the ECB initially pushed the euro lower, but that was shortlived. Within hours, the currency was sitting 0.3 per cent higher on the day against the dollar, at $1.104.
The eurozone faced “more protracted weakness” than previously thought, mainly because of the global trade slowdown, Mr Draghi added. The ECB cut its forecast for growth in the 19-member single currency zone this year by 10 basis points to 1.1 per cent, and by 20 bps to 1.2 per cent for 2020.
It also lowered its forecast for inflation by 10bp to 1.2 per cent this year, and by 40bp to 1.0 per cent next year. In response, the ECB signalled that interest rates would stay lower for longer than it had previously expected, changing its forward guidance. It had previously said that interest rates would not rise before mid-2020.
Reinhold von Eben-Worlée, managing partner of 160-year-old German firm Worlée and president of Germany’s Association of Family Enterprises, hit out at the ECB’s decision, saying that QE had “led to serious distortions and should be terminated”.
“Negative interest rates have led to distortions on the asset markets,” he said. “The real estate bubble and eroding pensions are direct consequences of an excessive monetary policy.”
Andrew Kenningham, chief Europe economist at Capital Economics, said: “It remains doubtful that this will do much to reboot the eurozone economy let alone achieve the near-2 per cent inflation target.”
A graphic with no description
Additional reporting by Joe Miller and Richard Milne
