ECB may announce today new economic stimulus

EPA/STEPHANIE LECOCQ

ECB President Mario Draghi has consistently hinted at further economic stimulus measures over the past few weeks.

The deposit rate for funds from commercial banks are expected to be decreased even further into negative territory


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The European Central Bank (ECB) is expected to announce further economic stimulus, as the Eurozone economy struggles to achieve an over one percent growth and the annual inflation rate stands at minus 0.2 percent.

In February, ECB President, Mario Draghi, spoke before the European Parliament’s Committee on Economic and Monetary Affairs and said that Bank’s assets purchase program is flexible enough to adapt to changing economies and markets, underlining that the ECB has plenty of monetary policy instruments to use in supporting the Eurozone economy.

Today, the governing board of the European Bank will meet to re-assess ECB’s monetary stand. British Public Broadcaster, BBC, reported that the ECB board is widely expected to cut the deposit rate for funds from commercial banks even further into negative territory. This move will pressure the commercial banks not to deposit some of the money available but invest it all. Currently, the deposit rate for funds from commercial banks stands at minus 0.3 percent, which means they must pay to park money with the ECB, but may be cut to minus 0.4 percent or even minus 0.5 percent, BBC reported.

BBC also reported that the ECB could also expand its assets purchase program. The Bank has already expanded its asset purchase program last spring, and promised to buy public and private sector securities to the tune of €60 billion every month until March 2017. The ECB hopes that with these quantitative easing programs, it will provide money to investors to invest in riskier ventures that earn more interest than cash or spend it in other ways to boost economic growth, employment and inflation. Now, BBC said that the ECB may buy even more bonds raising the €60 billion limit and expand yet again the date.

When Draghi addressed the Parliament on February 1, some MEPs told Draghi that the ECB’s policy is hitting the European social welfare system and the savings of the EU citizens. Draghi didn’t reject the claims but he said that the same happens in the US and Japan. “There you also have low interest rates and the problems for the pension funds are also similar,” Draghi replied..

 

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