European Central Bank ready to act if trouble hits economy
FRANKFURT, Germany (AP) — The European Central Bank is ready to take further action to help the economy if the outlook takes a sudden turn for the worse, bank President Mario Draghi said Wednesday.
Draghi said the bank would take “all the monetary policy actions that are necessary and proportionate” in addition to steps taken at its March 7 meeting, when it extended the earliest date for rate increases and announced new cheap loans for banks.
Speaking at a conference on monetary policy held by Frankfurt’s Goethe University, Draghi said the economy of the 19 countries that use the euro faced “pervasive uncertainty” from a slowdown in global trade, while domestic demand remained robust.
He said the bank could respond to weaker than expected inflation by adjusting its timetable for interest rate increases. Right now, the ECB says rates will not rise before the end of the year.
The bank’s benchmark rate for lending to banks stands at a record low of zero. The rate on deposits left at the ECB by commercial banks is minus 0.4 percent — in effect a penalty aimed at pushing banks to lend excess cash rather than let it pile up at the ECB.
The ECB uses its interest rate benchmarks to steer the cost of borrowing for banks, and, through that, borrowing costs for businesses and consumers. Lower rates should encourage borrowing and more economic activity.
The central bank took steps at the March meeting to maintain a strong level of stimulus, changing course just a few weeks after phasing out a massive stimulus program that it had carried on for almost four years and through which it had bought 2.6 trillion euros ($2.9 billion) in bonds. The shift followed a similar change of stance by the U.S. Federal Reserve, which has paused its series of rate increases amid fears about the health of the global economy.
Recent economic indicators have sent mixed signals. A survey of manufacturing activity in the eurozone pointed sharply down, while employment figures and wages continue to improve. Unemployment is at 7.8 percent, the lowest since October 2008. The European Union’s executive commission forecasts 1.3 percent growth in gross domestic product for the eurozone economy this year.
An important worry for export-oriented Europe is the possibility that the U.S. and China will fail to work out their trade disagreements and wind up imposing more tariffs, or import taxes, that would further slow global trade. Another threat is the possibility that Britain could leave the European Union without a negotiated agreement to smooth the transition. A “no-deal” Brexit could lead to new tariffs and customs checks that would disrupt the movement of goods and parts.