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4 Sep 2014
ECB cuts rates and announces ABS purchases to fight low inflation
FXStreet (Łódź) - During the press conference following ECB's unexpected decision to cut rates to new record lows at the September meeting, Mario Draghi also announced that simple asset-backed securities and covered bonds purchases would be launched next month.
The introduction of ABS purchases, which are supposed to facilitate credit flows to the economy, was backed by a "comfortable" majority of the Governing Council members, as Mario Draghi assured.
The measures are expected to reinforce the TLTRO program announced in June and coming into effect this month and push the balance sheet up to levels seen in 2012. Draghi refused to determine the size of the ABS program however, suggesting it is currently "difficult to assess."
The introduction of measures, as well as the rate cuts, were prompted by the deterioration of inflation expectations in August, Draghi said. The ECB inflation forecast for 2014 was cut to 0.6% from 0.7%, while predictions for 2015 and 2016 remained unchanged, at 1.1% and 1.4%, respectively.
As far as growth forecasts for the Eurozone are concerned, they were reduced to 0.9% this year from 1%, to 1.6% from 1.7% the next and were raised to 1.9% from 1.8% for 2016.
"Structural reforms, fiscal policy and monetary policy can jointly support growth," Draghi assured.
During the Q&A part of the press conference Draghi informed that the decision to cut rates and buy loans was not unanimous and that now "rates are at the lower bound where technical adjustments will not be possible."
The introduction of ABS purchases, which are supposed to facilitate credit flows to the economy, was backed by a "comfortable" majority of the Governing Council members, as Mario Draghi assured.
The measures are expected to reinforce the TLTRO program announced in June and coming into effect this month and push the balance sheet up to levels seen in 2012. Draghi refused to determine the size of the ABS program however, suggesting it is currently "difficult to assess."
The introduction of measures, as well as the rate cuts, were prompted by the deterioration of inflation expectations in August, Draghi said. The ECB inflation forecast for 2014 was cut to 0.6% from 0.7%, while predictions for 2015 and 2016 remained unchanged, at 1.1% and 1.4%, respectively.
As far as growth forecasts for the Eurozone are concerned, they were reduced to 0.9% this year from 1%, to 1.6% from 1.7% the next and were raised to 1.9% from 1.8% for 2016.
"Structural reforms, fiscal policy and monetary policy can jointly support growth," Draghi assured.
During the Q&A part of the press conference Draghi informed that the decision to cut rates and buy loans was not unanimous and that now "rates are at the lower bound where technical adjustments will not be possible."