After disappointing markets in December with stimulus measures below expectations, the European Central Bank on Thursday announced further rate cuts, more asset-buys, and other measures to prevent the emerging markets slowdown from dampening the eurozone recovery.
“This comprehensive package will exploit the synergies between the different instruments and has been calibrated to further ease financing conditions, stimulate new credit provision, and thereby reinforce the momentum of the euro area’s economic recovery and accelerate the return of inflation to levels below, but close to, 2%,” ECB president Mario Draghi said in prepared remarks.
The Frankfurt-based ECB took the following monetary policy decisions:
“A bank that is very active in granting loans to the real economy can borrow more than a bank that concentrates on other activities,” Draghi said in a later press conference.
Holger Schmieding at Berenberg bank told Reuters that the latest stimulus package was “good news for Europe.”
“Having delivered less than expected in December, the ECB returned to its usual form today and eased policy by a bit more than projected,” Schmieding said.
However, others including Munich Re chief economist Michael Menhart were more critical, warning that such loose monetary policy risked creating asset price bubbles and removed any incentive for governments to reform their economies.
Indeed, the central bank has already spent 700 billion euros buying government bonds and other assets in the past year, but the impact of its quantitative easing has been blunted by tumbling raw materials prices, according to Reuters. On Thursday, the ECB also lowered its 2016 inflation forecast to 0.1% from 1%.
Central banks within the G20 countries are now trying to come up with stimulus measures beyond maintaining ultra-low interest rates and printing money “to shake the global economy out of its torpor,” Reuters said.