Hints about implementing more easing measures for the economy was dropped by the European Central Bank (ECB) especially targeted for the markets on Thursday which resulted in the euro dropping to a two year low against the dollar for a brief period.

The key interest rate for the euro is expected to remain “at their present or lower levels” for at least during the first half of 2020, said the central banker of Europe. This was an update by the bank on its earlier statements in terms of the words used which appeared to hint on a possible cut in interest rates sometime in the future in 2020 or later.

“A significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favorable and support the euro area expansion,” said ECB President Mario Draghi after a press conference on Thursday.

The ECB could also devise and undertake some other measures to further boost the euro zone economy, signals of which was available in the statement of the bank. The central bank said that it was exploring options, “such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”

The possibility of the lowering of the charge that banks now have to shell out to the ECB to park their excess cash with the bank was essentially the meaning of the statement. A review of the possibility of reintroduction of a quantitative easing program in the coming months was also being carried out by it, the bank added. A quantitative easing strategy is essentially a large scale purchasing of assets by central banks wherein the purchases are essentially government bonds from member countries of the euro zone so that there is further boosting of lending and inflation.

The change in ECB’s stance and guidance caused the euro to hit a two year low against the US dollar and, according to data from research firm Refinitiv, a record low of 0.167 per cent was hit by the German 30-year bond yield. There was however some recovery after the comments of Draghi that certain aspects of a possible stimulus package did not draw a consensus within the members of the ECB.

While agreeing that there was need for further stimulus, some of the ECB members disagreed on what the elements of such programs should be, said Draghi during a television interview. “We had a broad discussion,” he said, “Whenever we have a package so complex as this, you’d expect that people have different nuances about the different parts of the package.”

Draghi also assured that the euro zone faced low chances of a recession which boosted the euro further after the initial fall.

A warning was issued last month by Draghi in a statement wherein he said that the central bank would announce further stimulus measures if there was no clear improvement in the economy of the euro zone.

(Adapted from CNBC.com)

Categories: Creativity, Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized