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ECB cuts bond purchases – Draghi: trade dispute biggest danger

As announced in June, the central bank halves the volume of its monthly bond purchases of this month to 15 billion euros. An end to the program for the purchase of government and corporate documents, the Whungshter will continue until the end of 2018. He sees a strong economy in the euro area, said ECB President Mario Draghi Thursday in Frankfurt. But there are also risks, especially as a result of international trade disputes.

Draghi had not shown any nervousness and you stick to the previous schedule, the chief economist at VP Bank, Thomas Gitzel, commented the decision. "Ultimately, there are also difficult alternatives, because the scarcity problem in the area of ​​German government bonds will stop the required security purchase."

The interest rates were left to the central bankers by the experts. The benchmark rate remains at the lowest point of zero percent. In addition, commercial banks will still have to pay a fine of 0.4 percent if they park money at the ECB. Higher interest rates are available to the earners at the earliest in the autumn of 2019. The Board of Directors confirmed its position that interest rates will remain at the current level until at least the summer of 2019.

Economists expect the ECB to first lower the fine for credit institutions. It remains uncertain whether Draghi will be the first at the end of his eight-year term in the autumn of 2019 Zinserhhung becomes effective or leave this step to his successor. The opportunities that Bundesbank president Jens Weidmann As the first German on the Executive Chair of the ECB, they seem to have deteriorated with a view to political post-poker in Europe last.

In the bond markets, the ECB will remain an important player, even if it does not buy new securities. She wants to reinvest money from the expiry of bonds. Since the beginning of the program in March 2015, the ECB has bought 2018 securities by the end of August 2018 for a total value of more than € 2.5 trillion. The aim is to help the economy in the 19 euro countries in this way and at the same time to increase inflation.

According to Eurostat statistics, consumer prices in the euro area were 2.0 percent higher in August than in the previous year. In the medium term, the ECB aims for price stability with inflation of just under 2.0 percent. That is far enough away from the zero rate. Because permanently low or even declining prices can encourage companies and consumers to postpone investments, which could dampen the economy.

Draghi sees the greatest risk and thus the biggest obstacle to a tightening of monetary policy in trade disputes worldwide. In addition, there are strong losses in currencies from some emerging economies such as Turkey, Argentina or India, to which the head of the ECB, however, attaches less importance. Argentina and Turkey are not substantial for the development of the world economy, he said at the press conference. However, he pointed to price fluctuations on the international financial markets as a result of the change monetary policy leading central banks.

The ECB expects slightly lower economic growth for this and next year than recently assumed. According to Draghi, growth in the eurozone is expected to reach 2.0 percent this year and 1.8 percent next year. As a result, the growth is 0.1 points lower than previously expected. US-led global trade disputes, the danger of disordered Brexit and the recent turbulence in some emerging markets gave the discrete downward corrections "a pretty good reason," experts from Landesbank Nord / LB said. By 2020 the ECB expects a steady growth of 1.7 percent.

The central bank left inflation forecasts unchanged at 1.7 percent each for the years 2018 to 2020. The ECB's projections are prepared once a quarter by the staff. They serve as decision-making aid for the monetary policy council. The euro gained more than half a percent against the US dollar during the ECB's press conference. However, a dollar weakness also played a role here because of the simultaneously published and less than expected US inflation data.


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Image sources: 360b / Shutterstock.com, ECB

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