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Monetary Policy – ECB chief Draghi is playing for time on euro appreciation News

Thursday, September 7th, 2017 | Economy

The monetary watchdogs opened their doors at their meeting in Frankfurt on Thursday to expand the controversial bond purchases, especially in Germany. They are currently the sharpest sword of the ECB in the fight for more growth and higher inflation. "The recent fluctuations in the exchange rate are a source of uncertainty," said Mario Draghi, President of the ECB, in an unusually clear form. The central bank had to keep an eye on the movements and the impact on price stability.
On the financial markets is now set to October as the month of decisions. The Community currency rose temporarily by more than one percent to 1.2059 dollars pending an early exchange rate.
ECB takes its time
"It remains the case: the ECB takes a long time to get out of the super-expansive monetary policy," commented economist Holger Sandte of the bank Nordea. In October, it would probably decide to extend the bond purchases with a lesser monthly volume. Critically, Isabel Schnabel said: "A gradual exit from the loose monetary policy is becoming increasingly difficult and the risks to financial stability are increasing."
Since the beginning of the year, the euro has grown by more than 14 percent against the dollar. This makes products from the euro zone on the world market more expensive. In addition, import goods are becoming cheaper, which could slow down inflation. It would be even more difficult for the ECB to achieve its target of just under two per cent. In August it was only 1.5 percent. "A very substantial amount of monetary policy support is still needed," said Draghi, referring to the cautious inflation dynamics.
Decisions in October
The ECB will now put its instruments to the test in autumn. "Probably the majority of the decisions will be made in October," Draghi announced. The ECB could also postpone this, should it not yet be so far. The experts of the central bank should first make suggestions for possible options. At the present Council meeting, the duration of the bond purchases and the monthly volume had already been discussed. The debate is still at a very early stage. Most experts assume that the central bank will decide to gradually lower the transactions from January onwards.
The securities purchases amounting to currently 60 billion euros per month expire at the end of the year. Then they will have reached a volume of 2.28 trillion euros. However, economic recovery in the Eurozone is now increasingly taking hold of itself, which also makes the ECB confident. In the second quarter, the gross domestic product rose even slightly more strongly, at 0.6 per cent, than at the beginning of the year. The ECB economists have pushed their growth forecast for 2017 to 2.2, up from 1.9 percent up to now. "The economic expansion, which has accelerated more than expected in the first half of the year, is still solid and broad across countries and sectors," said Draghi.
The monetary policy holders left the bank with a record low of 0.0 per cent. It has already risen to this level since March 2016. The so-called deposit rate remains at minus 0.4 percent. Banks are therefore required to pay penalties if they park overnight at the bank.


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