FRANKFURT,
Germany — European Central Bank launched an unexpectedly broad array
of stimulus measures Thursday aimed at boosting a modest economic
recovery in the 19 countries that use the euro and nudging up
dangerously low inflation.
The
steps, which ranged from interest rate cuts to cheap loans to banks,
included several measures many analysts hadn't anticipated, such as
expanding its monthly bond-buying stimulus program to include corporate
bonds.
The
ECB, the monetary authority for the euro countries, is struggling to
raise inflation from a worryingly low annual rate of minus 0.2 percent
toward its goal of just under 2 percent, considered healthiest for the
economy.
ECB
President Mario Draghi said the bank's decisions at the meeting of its
25-member governing council were the best answer to recent questions
about whether central banks were reaching the limits of what they can
do.
"We
don't give up in our fight to bring inflation back to our objective,"
Draghi said. He added that the steps to increase bank lending would
"reinforce the momentum of the euro area's economic recovery and
accelerate the return of inflation to levels below, but close to, 2
percent."
The
market's reaction was volatile. The Stoxx Europe 50 blue chip index
ended 1.8 percent lower after spiking higher earlier. The euro rose 1.5
percent to around $1.11 — though it usually falls in response to more
stimulus.
Laith
Khalaf, senior analyst at stockbrokers Hargreaves Lansdown, said the
use of ever more unusual stimulus measures was hard to see as positive.
He
said the fact the ECB is "still pursuing such extreme monetary policy
paints a depressing picture of the European economy." Investors, he
adds, "are beginning to question what central banks have left in the
locker if the global economy slips back towards recession."
More
economic malaise in Europe is the last thing the global economy needs.
The region is a key market for major companies, from automakers Ford and
General Motors to technology companies Apple and Samsung. Trouble in
Europe would compound woes from slowing growth in many parts of the
world, particularly China.
The ECB's stimulus efforts over the past year seemed a long way away for Portuguese pensioner Dolores Tavares.
"I
haven't noticed any difference in my life," Tavares said as she and her
husband put the shopping in their car trunk outside a Lisbon vegetable
market. "I don't expect the benefits to reach me anyway. All that will
be for the big financial people, not people like us."
In Spain, Enrique Quero took a more upbeat view.
"These
measures have more of an overall global effect and, yes, are positive
in general for society and for markets, although they don*t affect
people directly," said Quero, 42, who works in an employee recruitment
agency in Madrid. "In Spain, they have a good influence on investments
and helping getting money moving because they liven up markets."
The
breadth of Thursday's measures suggests the ECB was determined to
impress markets, which had been underwhelmed by the bank's last package
of stimulus in December.
Here's what the ECB did:
— It cut its main benchmark rate to zero from 0.05 percent
—
Lowered the rate on deposits from commercial banks at the central bank
to minus 0.40 percent from minus 0.30 percent, an unconventional move
aimed at pushing banks to lend rather than hoard cash
—
Boosted its monthly bond purchases to 80 billion euros ($88 billion)
from 60 billion euros, pushing more newly printed money into the economy
— Added corporate bonds to the assets it can buy, expanding the potential scope of the stimulus program
— And announced long-term loans at zero or negative interest of up to four years to help support banks.
The
negative rate on deposits is an unusual step aimed at pushing banks to
lend rather than leave money at the central bank. More lending would in
theory promote growth and push up inflation.
Alasdair
Cavalla at the Centre for Economics and Business Research in London
suggested that the latest ECB steps were comparable to the last stage of
U.S. Federal Reserve's stimulus efforts that promised open-ended
stimulus until unemployment fell. The Fed has ended its stimulus efforts
and has made a first interest rate increase, as the U.S. economy has
strengthened.
"The
ECB has been far more cautious than the Fed throughout the Great
Recession, and may at last be realizing that this may have at least
something to do with the divergence in economic performance since then,"
Cavalla wrote in an email.
Yet
the ECB's cut of the deposit rate below zero — also deployed by central
banks in Japan, Denmark, Switzerland and elsewhere — has raised fears
of side effects, in particular that it could dent bank profits. The
cheap loans appear aimed at removing that concern.
Having
healthy banks is crucial because they provide most business financing
in Europe — a contrast with the United States, where most business
credit comes from financial markets. Also, weak banks don't lend.
Despite
unconventional measures such as negative rates, central banks in
Europe, Japan, the United States and elsewhere have had little luck
recently in pushing up inflation. The Bank for International
Settlements, an international organization of central banks, said in a
report Sunday that central bank policies were reaching their limit.
Many
economists say that the key to boosting global growth must come from
governments spending more and tackling the obstacles to growth in their
own economies. That would include clearing away regulation that makes it
hard to start a business and excessive employee protections that make
companies reluctant to hire in the first place.
No comments:
Post a Comment