The European Central Bank will delay its first interest rate hike since the 2008 financial crisis "at least through the first half of 2020", said its president, Mario Draghi.
The previous policy was for rates to stay steady until the end of 2019, but Draghi went further, indicating the bank was ready to “use all the instruments that are in the toolbox”, opening the door to a new surge of monetary support before his term ends in October, including a new round of bond purchases and further cuts to ECB’s already record-low interest rates.
The move offers to “effectively pay banks to borrow from it and lend that money on to the real economy”, Reuters says.
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The bank’s new quantitative easing measures are designed to assuage rising concerns over currency deflation and global economic slowdown - even downturn.
“The prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets is leaving its mark on economic sentiment,” Draghi said.
Initially, the announcement saw the euro climb 0.6% yesterday, but it “faded quickly as investors sensed that Draghi was trying to send a dovish message with cheap talk rather than meaningful action”, the Telegraph says.
“It is more dovish than we probably expected ... But I wouldn’t say the ECB is really getting ahead of the curve,” Florian Hense, European economist at Berenberg, told CNBC.
Indeed Draghi’s pledge “capped a dovish week for the world’s two most important central banks,” says the Financial Times. “Jay Powell, chair of the US Federal Reserve, said earlier this week that he was prepared to cut rates should the global trade war begin to affect the US economy.”
“Australia cut interest rates on Tuesday for the first time in three years”, Bloomberg reports, “and bets are mounting that the Bank of Japan will add stimulus. India reduced its key rate on Thursday and changed its stance to accommodative.”
It is too little, too late, according to Ashoka Mody, formerly of the International Monetary Fund, who oversaw much of the bailout following the 2008 financial crisis. “There is nothing that the ECB can do. It is completely powerless”, he said. “It has entered a zone of ‘involution’ and is scrounging about trying to create a sense of action, but none of this has any effect.”
“The days are long gone when the ECB maestro can restore animal spirits with a catchy phrase,” Ambrose Evans-Pritchard writes in the Telegraph. “The famous bazooka has become a popgun.”
