The European Central Bank opened the door today to turning on its money-printing presses to boost the euro zone economy and keep inflation from staying too low.
It kept interest rates steady at 0.25 per cent at its regular meeting, but afterwards ECB president Mario Draghi said he and his colleagues were committed to doing anything they could to stop low inflation from dragging on too long. This included quantitative easing, the printing of money to buy assets, something that previously was considered highly undesirable by some euro zone central bankers, and only to be considered if prices were falling outright.
But policymakers have been willing in recent weeks to publicly broach cutting deposit rates below zero - effectively charging banks to hold cash with the ECB - or embarking on QE bond purchases as the United States, Japan and Britain have, if the threat of deflation became more acute.
“We will monitor developments very closely and we will consider all instruments available to us,” Mr Draghi said. “We are resolute in our determination to maintain a high degree of monetary accommodation and act swiftly if required.”
He added: “The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.”
That marked a significant shift of tone from last month when Mr Draghi appeared to set quite a high bar to action. The euro weakened against the dollar after his comments, hitting its lowest level since February 28th, but then recovered.
“The ECB is being slightly more dovish than the market expected,” said Kathy Lien, managing director at BK Asset Management in New York. “The main takeaway is that the council is considering unusual techniques, and that’s negative for euro/dollar.”
Nonetheless some economists were sceptical that Mr Draghi’s words would soon be followed by action from the ECB.
“Our base case still is that the ECB is done easing and that major unconditional measures will not be taken, barring a major shock to the economy,” said Holger Sandte, chief European analyst at Nordea. ING referred to it as “The Art of Doing Nothing”.
