And if the demonstration of power of the ECB is rather a sign of desperation? – publico

                 

                         
                     

                         

                 

 
 

Paying the banks to lend them money, accelerate the machine to print money at over EUR 20 billion per month, start buying bonds of companies and lower interest rates to new record lows. The European Central Bank (ECB) looked for an economy with a slow recovery and a negative inflation and decided to launch to the markets practically everything he had, a monetary stimulus package that went much further than what we expected analysts. The problem is that past few hours, and after a very cold reaction of the market, the question lingered: what we saw was a demonstration of the power of the central bank or just a sign of desperation before the deflation ghost

the board meeting of ECB governors on Thursday will go down in history as another very significant step of the ECB towards unknown territory.

the benchmark interest rates of the central bank which were already at historic lows, were all cut in an attempt to make the credit goes to the economy. As expected, the deposit interest rate – one that is applied to the reserves accumulated by financial institutions at the ECB – rose from -0.3% to -0.4%, increasing the incentive for banks no longer have the money stopped and lend to businesses and households

and more surprisingly, the main refinancing interest rate -. that the financial institutions to borrow money at the ECB – came down from 0.05 % that they were to zero. Thus, in its regular operations, a bank becomes power, provided that it has adequate safeguards, ask the ECB borrowed money without paying interest.

But the ECB did not end here and decided to even advance to the unprecedented step of paying interest to the banks to lend them money. This can happen in the four long-term loans the central bank will hold from June to financial institutions of the euro area and where the interest rate charged can be as low as -0.4%.

then, in addition to stimulate credit flows by cutting the already very low interest rates, the ECB increased its cash creation strategy to increase the volume of purchase of assets you want to accomplish in the markets. Instead of 60 billion euros will go to 80 billion injected monthly euros in the financial markets through the purchase of government bonds, securitized loans from banks and now debt securities of non-financial companies in the euro zone .

the objective of the ECB with these measures is evident and assumed: combat the risk of entry of the euro zone in a situation similar to that experienced by Japan since the 90s, where deflation remains stagnant economy without recovery consumption and investment.

the six measures announced by the ECB

and this risk was even more evident in recent weeks, said Mario Draghi in press conference that followed the meeting. Not only the world economy showed signs of further weakness, as the inflation rate in the euro zone fell to negative territory in February, pushed by oil prices, but with contagion signals to other products.

the ECB has revised it downwards its projections for inflation, pointing now to keep inflation at 0.1% in 2016, remaining for several months in negative land and starting up just at the end of the year if the measures presented now work. For 2017 and 2018, the expected inflation rates are 1.3% and 1.6% respectively, which shows that reach clearly the ECB’s target of inflation to stay “below but close to 2%” can be a much more time-consuming task than expected.

Distrust of markets

Among the experts, few disagree that the ECB has advanced in this meeting with all that that one would expect from a central bank with its history and profile. In practice, now played all the cards (and then some) that could be divined in the hands of the perpetrators.