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Draghi pledges monetary stimuli to revive the economy and avoid deflation

Friday, July 4th 2014 - 06:50 UTC
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The ECB president said he want inflation back at 2% from the current 0.5% The ECB president said he want inflation back at 2% from the current 0.5%

European Central Bank president Mario Draghi reiterated on Thursday that he'll keep interest rates low as officials try to revive the region's economy with a new round of emergency measures.

The key ECB interest rates will remain at present levels for an extended period of time,“ Mr Draghi said after he and his colleagues left borrowing costs unchanged.

Thursday's meeting was the first after the ECB unveiled a range of measures last month to fight the threat of deflation in the euro area. The package includes long-term loans to banks under the condition they lend the money on to households and companies as well as preparatory work for an ECB asset-purchase program.

Dragui said last month's measures had further loosened the euro zone's monetary policy stance.

”The monetary operations to take place over the coming months will add to this accommodation and will support bank lending,“ he told a news conference.

”As our measures work their way through to the economy, they will contribute to a return of inflation rates to levels closer to 2%“.

The euro zone inflation rate held at 0.5% last month, well below the ECB's target of close to but below 2% and in what Draghi has called the ”danger zone“.

If people and firms began deferring spending plans on the basis that they expected prices to fall, an economic downward spiral of the sort suffered by Japan could take hold. The ECB says its sees no sign of that.

Mr Draghi's press conference was overshadowed by a US jobs report that painted a picture of a brightening labor market in the world's largest economy. The euro dropped again against the dollar during the press conference.

The ECB left the main refinancing rate at a record low of 0.15%, and the deposit rate stayed at minus 0.1%.

Last month's historic announcement left many questions unanswered and Mr Draghi gave some details on the new targeted-loan program. He estimated that banks could take up as much as €1 trillion in the two initial tenders and a series of quarterly auctions.

”I'm confident that banks will quickly understand that even though it's complicated, it's also quite attractive,“ he said. At the same time, Draghi provided no precise definition of how much lending banks need to generate before they can keep the loans for the four-year life span of the program. Nor did he flesh out the ECB's thinking about purchases of asset-backed securities as a means to get lending flowing again.

The ECB's 24-member governing council is trying to stop inflation falling too low in an economy still struggling to recover from a debt crisis that at one point threatened to blow the euro apart.

”We are strongly determined to safeguard the firm anchoring of inflation expectation over the medium term,” Draghi said. He also repeated that the ECB stands ready to embark on broad-based asset purchases if necessary.

Draghi said that the ECB will next year move from a monthly cycle of announcing interest rates and will instead announce its decisions every six weeks. In addition, the ECB also plans to start publishing minutes in 2015, falling into line with the Federal Reserve and the Bank of Japan.
 

Categories: Economy, Politics, International.

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  • ChrisR

    “If people and firms began deferring spending plans on the basis that they expected prices to fall, an economic downward spiral of the sort suffered by Japan could take hold. The ECB says its sees no sign of that.”

    It couldn’t find it’s backside if it were sitting on it.

    “The ECB left the main refinancing rate at a record low of 0.15%, and the deposit rate stayed at minus 0.1%.”

    So citizens are still going to LOSE money by leaving it in the bank: great?

    And they want the UK to stay in the EU or they won’t be able to finance this cock-up and Camoron agrees.

    Jul 04th, 2014 - 08:11 pm 0
  • Conqueror

    Let's be clear. Draghi is a banker. His “qualifications” as an economist are forty years old. Any changes in “economics” in the last forty years? Just as a matter of interest (sorry), the U.K. and the U.S. are growing. The Eurozone is declining, again. Where will Draghi get the money for these “loans”? Magic? Doesn't exist. Germany? Germany is stagnating and resting on its laurels. Where in the EU is there are strong and growing economy? That would be the UK. Method? There's a shortfall in the EU budget and we need more money. From the UK. Grab the money, never to be repaid, and hold the UK back at the same time.

    The EU must think the British people are dumb. Some are. Most aren't. But here's the really good bit. When enough of the British people have figured it all out, the UK will go to war! Take a look at the First French/Napoleonic Empire. http://en.wikipedia.org/wiki/Napoleonic_Empire Beat that.
    Then there was the WW1 German Empire. http://en.wikipedia.org/wiki/Napoleonic_Empire Beat that.
    Then there was Germany's Third Nazi Reich. http://en.wikipedia.org/wiki/Napoleonic_Empire Beat that.

    Will the next opponent be the European Empire? http://en.wikipedia.org/wiki/Napoleonic_Empire

    Not really a problem. We've beaten Europeans before. We've beaten the world before. Don't overrate the contributions of the Americans and Russians in WW2. When the Russians joined in, it was only after they'd stolen most of what they wanted and had been attacked by their nazi allies. When the Americans got off their butts, we'd already started beating the nazis. All we said was “Give us the tools”. Nobody said they should come over to make sixty years' worth of movies. “The Longest Day” was quite a good movie. There were Brits in it! And how long did the yanks take to get off one of their two beaches? The Brits/Canadians had THREE beaches. The yanks had equipment. The Russians had western equipment. The Brits and Canadians had MEN. ”We will fight....We will never surrender!

    Jul 06th, 2014 - 03:11 pm 0
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