The European Central Bank (ECB) is getting ready to offer more stimulus for the struggling eurozone economy — but expects to make a decision only early next year after it assesses the impact of sharply lower oil prices, ECB President Mario Draghi said on Thursday.
After agreeing to keep its benchmark interest rate unchanged at 0.05 percent, as expected, the ECB did not unveil new stimulus programs.
Rather, Draghi said the ECB would reassess in the first months of next year the success of its existing stimulus programs and the impact of the recent plunge in oil prices on the economy of the 18-country eurozone.
In Asian trading, stocks mostly rose yesterday, ending the week on a high note, as the US dollar broke above the ¥120 mark and the euro held on to gains after the ECB stood off fresh stimulus measures.
Tokyo rose 0.19 percent and Shanghai climbed 1.32 percent, while Seoul closed flat. However, Sydney closed 0.62 percent lower with energy firms hit by the weak oil prices.
RBS analyst Richard Barwell said the decision to wait could be a way to design a stimulus program that takes into account the hold-outs’ reservations.
Or it could be a way to put pressure on them. By not providing stimulus piecemeal, as it has done so far, the ECB can show that a larger measure is needed as the economy shows no signs of improvement.
“In short, President Draghi is playing hardball, where he hopes that doing nothing today increases the chance of doing enough tomorrow,” Barwell said.
Among the ECB’s biggest concerns is low inflation, a sign that economic activity is weak. A protracted drop in prices could lead to deflation, a downward spiral in which consumers and companies put off spending in hopes of cheaper deals later.
Reasons for no fresh stimulus measures include doubts about whether the step will have much effect, opposition from German officials skeptical about central bank stimulus that they see as bailing out governments, and a desire to see what effect the earlier stimulus measures will have before starting something new.
Meanwhile, the recent slump in oil prices has added a new variable to the mix.
Lower oil prices cut two ways in Europe. They make the ECB’s inflation headache worse by bringing down prices. However, they also help growth, as consumers and businesses can use money saved from lower fuel bills for spending or investment.
ECB staff “have stepped up the technical preparations for further measures, which could, if needed, be implemented in a timely manner,” Draghi said.
That was a hint the bank could start buying government bonds, a policy that has been used by the US Federal Reserve, Bank of England and Bank of Japan.
Draghi indicated that the ECB council would not wait for unanimity among its 24 board members, suggesting that one or two dissenters could not block action.
“We don’t need unanimity,” he said, though he added that new stimulus programs could be “designed to have consensus.”
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