ECB hints at further stimulus to combat low inflation


The European Central Bank (ECB) has said it will provide “further stimulus” to the eurozone economy if inflation in the bloc continues to remain low, the BBC reports. Mario Draghi, the bank’s president, said a stronger euro would act as a trigger to looser monetary policy. The rise of the single currency’s exchange rate is one of the main reasons eurozone inflation is at a dangerously low 0.5 percent. One of Draghi’s stimulus options would be quantitative easing (QE). That is something the International Monetary Fund (IMF) has been suggesting as concerns grow about deflation in the eurozone. Speaking after the IMF’s spring meeting in Washington, Draghi hinted that QE – the large-scale purchase of financial assets – may be needed. “If you want policy to remain as accommodative as now, a further strengthening of the exchange rate would require further stimulus,” he said. Earlier this month the ECB kept interest rates steady, at a historic low of 0.25 percent, but Draghi said its members were unanimous in their willingness to begin QE if inflation stayed well below their 2 percent target. Their fear is that falling inflation could harm the eurozone’s fragile economic recovery by reducing consumer spending – because people would be likely to put off purchases, believing prices will continue to fall. Low inflation also means governments and businesses find it more difficult to repay their debts. However, most analysts believe Draghi’s more likely choice would be a further cut in the ECB’s benchmark interest rate, currently at a record low of 0.25 percent.

Leave a Reply