Tue. Apr 23rd, 2019

"the probability of recession is relatively low" in the euro zone

"the probability of recession is relatively low" in the euro zone



The European Central Bank (ECB) considered at its meeting in early March that "neither the euro area nor the global economy are in recession and the probability of a recession is still relatively low".

Sponsored Ads

Advertise Here

This is clear from the minutes of his last monetary policy meeting, published today, in which he decided to postpone the rise in interest rates until 2020 and inject more liquidity in the long term, two years.

The report reveals that some members of the Governing Council preferred to postpone the rise in interest rates until the end of the first quarter of 2020 instead of until December 2019 to provide an "additional" monetary expansion and because it would be more in line with expectations From the market.

Other members preferred to extend the guidance on interest rates until the end of 2019 because a rebound in the economy is expected in the second half of the year.

And therefore they considered that it was more appropriate to act gradually according to how the economic data is, because "there remains a high uncertainty".

"After all, the members agreed to prolong the guidance on the interest rates of the Governing Council until the end of 2019," the minutes add.

The ECB lends the banks weekly to 0% and charges them 0.4% for the excess reserves.

The first rise in interest rates will occur in the deposit rate, which is now negative and therefore the ECB charges banks for excess liquidity.

The Governing Council agreed that it was necessary to ensure that the liquidity of the new operations "passes into the real economy and limits the use of financing for carry trades in sovereign bonds."

The operations of "carry trade" consist of financing at a low interest rate and investing that money in assets that give more profitability.

In other long-term liquidity injection operations a few years ago, banks used financing to buy sovereign debt.

The ECB decided in March to postpone the rise in interest rates until 2020 because it foresees an economic weakening, which will also prevent inflation from rebounding.

However, it predicts a rebound in the economy in the second half of the year if some temporary factors improve, foreign trade and trade conflicts relax.

.



Source link

Leave a Reply