posted at 21:50
Author Name: Simon Morgan
Slowing inflation paves way for more ECB action
"What pleases consumers makes the ECB increasingly nervous," said Commerzbank economist Christoph Weil. The central bank is scheduled to publish its latest updated inflation and growth forecasts on Thursday and it is worried that medium-term inflation expectations could become permanently de-anchored from the ECB's target of around 2.0 percent. The ECB has so far cut its interest rates to new all-time lows, made unprecedented amounts of cheap loans available to banks via its LTRO and TLTRO programmes, and unveiled asset purchase programmes to pump liquidity into the financial system. QE is the large-scale purchase of government bonds and such a policy has many critics in Europe, not least the German central bank or Bundesbank, because it is felt that it takes the ECB outside its remit and is effectively a licence to print money to get governments out of debt. "Broad-based bond purchases by the ECB now seem to be only a matter of time," said Commerzbank economist Weil. Such expectations appeared to be confirmed last week when the ECB's number two, Vitor Constancio, said the central bank would only be in a position to gauge whether the previous stimulus measures are working in the first quarter of 2015. Just days prior to that, ECB chief Mario Draghi had vowed to "Step up the pressure and broaden even more the channels through which we intervene... without any undue delay." "On the one hand, the ECB does not have any real incentive to delay a move that appears warranted by economic fundamentals. On the other hand, some governing council members seem to prefer to wait... before considering new stimulus measures."

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