Arab Today, arab today ecb set to keep gunpowder dry as economic gloom deepens
Last Updated : GMT 08:52:09
Arab Today, arab today
Arab Today, arab today

ECB set to keep gunpowder dry as economic gloom deepens

Arab Today, arab today

Arab Today, arab today ECB set to keep gunpowder dry as economic gloom deepens

European Central Bank
Frankfurt - AFP

The European Central Bank is likely to hold fire on any new policy measures Thursday even as the clouds continue to darken over the euro area economy, analysts said.
Despite growing pressure for more action to ward off the spectre of deflation in the single currency area, ECB President Mario Draghi will likely argue that a raft of previous radical measures still need time to unfold, the analysts argued.
"We do not expect the ECB to announce new measures. The ECB will likely focus on the measures taken so far," said Natixis economist Johannes Gareis.
This month's regular monetary policy meeting "will be a non-event," agreed UniCredit economist Marco Valli. "All the available signals suggest the ECB will maintain the status quo."
On Tuesday, the EU slashed its 2014 growth forecast for the 18-country eurozone to just 0.8 percent from the previous 1.2 percent, with 2015 chopped to 1.1 percent from 1.7 percent.
The ECB does not have much room to cut interest rates much further, anyway, as they are already at 0.05 percent, an all-time low.
So, the ECB has embarked upon a series of liquidity programmes to inject cash into the economy to try and kick-start stymied credit, seen as the main hurdle to a sustained recovery.
In addition to targeted long-term refinancing operations or TLTROs -- which make cheap liquidity available to banks on condition they lend it on to companies -- the ECB has launched a programme to buy covered bonds.
Furthermore, the ECB is launching purchases of asset-backed securities (ABS), or bundles of individual loans such as mortgages, car loans and credit-card debt sold on to investors, to allow banks to share the risk of default and free up funds to offer more lending.
Draghi has said the combined effect of these measures will ECB could boost the size of the bank's balance sheet by one trillion euros ($1.25 trillion).
Nevertheless, the effects of the measures have yet to fully unfold, because analysts believe some banks may have preferred to hold off until after the results of the ECB's most stringent-ever audit of lenders were published.
The results of the audit were published last week, giving a large majority of banks a clean bill of health.
Media reports of serious disagreements on the ECB's policy-setting governing council and criticism of Draghi's leadership style were exaggerated, analysts said.
"What's so new or unusual about lively debates within a central bank?" asked Berenberg Bank economist Holger Schmieding.

 

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