With friends like Draghi, banks don't need enemies

11 March, 2019, 10:33 | Author: Billie Castillo
  • European Central Bank joins global push to help economy

The dollar was holding near its new 2019 high posted in the previous session after the ECB postponed an interest rate hike until 2020 and offered banks a fresh round of loans to prevent a credit crunch that could worsen the European Union's economic slowdown.

Compounding concerns was a US payrolls report that fell well short of expectations, although other measures within the report were strong, sending mixed signals to investors.

While investors had long stopped pricing in an ECB rate hike this year, few expected the bank to change its policy message at this meeting.

With a global trade war weighing on confidence, industrial production and exports have slipped, exacerbated by a string of domestic difficulties, from German industry's struggle to adapt to new auto emissions regulations to protests in France.

"There is reason to argue that the European Central Bank would need to keep rates lower than beyond the guidance date because if you look at their inflation forecasts out to 2021, you would need some form of accommodation to reach these levels of growth", said ING senior rates strategist Benjamin Schroeder.

"We are (in) a period of continued weakness and pervasive uncertainty", Draghi told a news conference as he announced cuts to the bank's growth and inflation forecasts.

The ECB's actions highlight how quickly the fortunes of the European and global economy have shifted.

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The ECB has promised not to raise interest rates, "at least" through the end of this year.

"What we have today is the pressure from the cycle", Min Lan Tan, head of the chief investment office for Asia Pacific with UBS Group AG's wealth-management unit, said in an interview with Bloomberg Television. The purchases were a way of pushing newly created money into the economy to raise inflation from dangerously weak levels and support a recovery from the Great Recession and a crisis over too much debt in the eurozone.

European Central Bank actions will improve resilience of economy.

Italian government bond yields also briefly extended falls as investors cheered the report.

The central bank for the 19 countries that use the euro pushed back the earliest date for an increase in interest rates from current record lows.

The ECB looks like they want to stay ahead of the curve, but by revising its forward guidance, it will take away a lot of the punch in the element of surprise from economic data if it does come about in the latter half of this year. "Any next step from here to tackle a severe downswing of the economy would now require unprecedented measures".

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