The Irish Times view on the ECB: change is on the way

The European Central Bank (ECB) did not adjust interest rates or announce any new policy moves after the latest meeting of its policymaking council, but it left financial markets in little doubt that change is on the way. At its next meeting, in September, it may move its interest rates lower and also announce other policy changes. The problem is that, having already thrown the kitchen sink in its efforts to boost economic growth and inflation, options are limited.

It is a mark of how poorly the euro zone economy is performing that despite the ECB’s key interest rate being at zero per cent – and the deposit rate it pays to banks at minus 0.4 per cent – further cuts are in the offing. Most likely, it will reduce the deposit rate a bit further, albeit with some changes to also protect the banks. It has promised to maintain ultra low interest rates at least until the middle of next year – and in reality a rate rise is now a long wayoff.

The ECB will also consider other measures, including resuming purchases of government bonds or other assets, effectively pumping cash into the economy. It is, literally, throwing money at the problem, but without any guarantee of success. While we are insulated in high-growth Ireland, the latest economic data from the big Continental economies is poor, notably in the manfacturing sector, hit by threats of trade wars and other factors. The ECB is not alone. The US Federal Reserve Board may cut US interest rates next week, though having increased them after the crisis it, at least, has room to manoeuvre. Across the developed world, the lingering after-effects of the economic crisis remain all too real.

Low interest rates are welcome for the Irish State and for borrowers. The refinancing of our national debt can continue at rock-bottom interest rates. And mortgage and other borrowing rates will remain low and, depending on what the ECB does, some rates could even ease further. But the poor growth outlook in the EU – and the slowdown in the US – is of concern, too, particularly in the context of the rising threat of a no-deal Brexit.