Some economists expect the European Central Bank to restart quantitative easing later this year
firepower is sadly depleted. The interest rate on the reserves that banks hold with it is sub-zero; its quantitative-easing scheme has hoovered up assets worth €2.6trn —equivalent to over a fifth of the euro area’s. Even so, in June Mario Draghi, the bank’s boss, promised further stimulus if the economy does not buck up. Statistics published since then suggest little recovery. Cue much speculation about another attempt to revive growth.
Many expect an announcement at the bank’s meeting in September, along with updated economic forecasts. But its next gathering on July 25th could still surprise, or at least lay the groundwork for stimulus. With individual instruments nearing limits, it is expected to deploy a combination.Of late its weapon of choice has been guidance on the path of interest rates. It has promised to keep rates steady for longer, at least until mid-2020.
Banks complain that negative interest rates shrink their margins: they have to pay the central bank to hold their deposits, but fear that if they pass negative rates on, their depositors will withdraw their cash. Profits and lending both fall, preventing the rate from transmitting to the real economy. For now, thereckons it has not reached the “effective lower bound”—the point at which the expansionary effects of negative interest rates stop outweighing any costs.
Some economists therefore expect attempts to mitigate the negative impact of rate cuts by excusing banks from negative rates on some excess reserves. Even then rates may be not far off the lower bound. Analysts atThat limited space is why some economists also expect the bank to restartlater in the year. Daniele Antonucci of Morgan Stanley, a Wall Street firm, expects the bank to announce monthly purchases of government and corporate debt of €45bn.
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