The European Central Bank (ECB) on Thursday took unexpectedly quick action to support a slowing economy, joining the US Federal Reserve and Chinese leadership in their attempts to counter worries about global growth.
The central bank for the 19 countries that use the euro pushed back the earliest date for an increase in interest rates from current record lows.
It said rates would stay unchanged at least until year-end — previously, it had said until the fall.
The ECB also said it would offer a series of ultra-cheap loans to banks, supporting their ability to keep lending to businesses.
The moves appear to signal concern that the weakness in economic growth could be more than a blip and threatens to turn into a more lasting downturn.
Amid doubts about the extent of the economy’s slowdown, ECB President Mario Draghi said it was important to take action.
“In a dark room you move with tiny steps. You don’t run, but you do move,” he told a news conference at the bank’s headquarters in Frankfurt. “You try to be proactive rather than reactive.”
Wage growth continues to support consumer spending and the economy.
However, the eurozone, where the economy is heavily dependent on trade, faces external threats such as a chaotic Brexit and the possibility that governments around the world might put more limits on trade.
“Our decisions certainly increase the resilience of the eurozone economy, but can they address the factors that are weighing on the economy in the rest of the word? They cannot,” Draghi said.
The US Federal Reserve has already adjusted the course of its monetary policy.
It has signaled a pause in its rate increases and said it is ready to slow the reduction of bond holdings purchased under earlier stimulus efforts.
Chinese authorities, faced with a long-running cool-off in the country’s high growth, are also offering support to business, including a cut of up to 1.3 trillion yuan (US$193.35 billion) in value-added and other taxes.
The ECB’s measures came earlier than expected, said Carsten Brzeski, chief economist at the bank ING Germany.
“It is clearly an attempt to stay ahead of the curve,” he said.
The ECB also slashed its forecast for eurozone economic growth this year to 1.1 percent from 1.7 percent previously.
Inflation is expected at 1.2 percent, down from a 1.6 percent forecast earlier and well below the bank’s goal of just under 2 percent.
This week, the Organisation for Economic Co-operation and Development cut its forecast for global growth this year to 3.3 percent from the 3.5 percent it had forecast in November last year. That would be a slowdown from last year’s 3.6 percent.
All of which means it could be some time before the ECB raises its key interest rates. The rate for lending to banks is at zero, while the rate on deposits from commercial banks is at minus-0.4 percent.
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