Tags: European | Central | Bank | Rates

European Central Bank Chief Signals Low Rates Through 2016

Sunday, 22 June 2014 08:34 PM

Mario Draghi indicated that the European Central Bank’s interest rates will probably remain low for at least another 2 1/2 years.

“We have prolonged banks’ access to unlimited liquidity up to the end of 2016. That is a signal,” the ECB president said in an interview published in Dutch newspaper De Telegraaf on Saturday, responding to a question on how long rates will stay low. “Our program in support of bank lending to businesses will continue for four years. That shows that interest rates will remain low over a longer period. But thereafter they will increase when the recovery will firm up.”

A year after the 18-nation euro area exited its longest recession, the Frankfurt-based ECB is still battling too-low inflation and attempting to reboot demand. Draghi introduced an unprecedented range of measures this month including a negative deposit rate and said quantitative easing remains an option if deflation appears.

The recovery “is still weak and unevenly distributed across the euro area,” Draghi said. “Accidents could happen in the global economy that can quickly change the situation.”

Purchasing-manager surveys by Markit Economics due Monday may show manufacturing in France contracted for a second month in June while it expanded for a 12th month in Germany, according to Bloomberg News surveys of economists. Those reports will be released at 8 a.m. and 8:30 a.m. respectively in London, followed half an hour later by one on the euro region.

Rate Hints

While investors are looking now for hints from the U.S. Federal Reserve and the Bank of England on when their cost of borrowing will begin to rise, Draghi said that the euro-area recovery is at “an earlier stage” than that of its peers and that broad-based asset purchases would be “the answer” if the inflation outlook weakens further.

“Quantitative easing can include not only government bonds, but also private sector loans,” he said. “We will discuss that when the time comes.”

The ECB plans to offer banks targeted long-term loans, or TLTROs, of as much as 400 billion euros ($544 billion) for four years, with the condition that they boost credit to companies and households. By offering the loans at a small premium to current ultra-low rates, the ECB is signaling that borrowing costs will eventually increase. Banks have an incentive to use the program if they believe rates would be higher at the end of the loan period. The ECB’s benchmark rate is 0.15 percent.

“As soon as there’s clear growth, i.e. more than two percent, then the change in rates will come,” said ECB Governing Council member Ewald Nowotny, in an interview published Sunday in Austria’s Kronen Zeitung. “From today’s perspective however, that will scarcely be before 2016.”

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European Central Bank President Mario Draghi indicated that the ECB will keep interest rates low for at least another 2 1/2 years.
European, Central, Bank, Rates
Sunday, 22 June 2014 08:34 PM
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