IMF considers the ECB measures insufficient
20.06.2014
Fundamental analysis 20.06.2014
Despite the unprecedented measures taken by the ECB to deal with low inflation, the IMF considered them insufficient. In the latest report the IMF calls on the European monetary authorities to follow the example of the Fed, starting a large-scale purchase of Eurobonds in order to stimulate economic growth. IMF fears are more than understandable, despite the seriousness of the decisions taken by Mario Draghi, their effectiveness is far from obvious.
Although the so-called quantitative easing has been firmly stuck in the toolbox of the major regulators, there is virtually no experience in the combination of a negative deposit rate with offering cheap loans to commercial banks. The latest statistics from Germany also add fuel to the fire, where the end of May producer prices dropped by 0.2%, after last month’s decrease by 0.1%.
At the ECB, however, it is believed that the measures taken to stabilize the inflation rate are more than sufficient. According to a member of the Governing Council of the ECB Benoit Kerr, in the present circumstances massive purchases of securities are not required. Later, he clarified that the measure is still in the palette of measures of the ECB, but the question about its use will be relevant only if inflation continues to remain at low levels.
However, statistics continue to remain weak. Therefore, a logical question arises whether it is right to call the current situation a recovery, or just a breather before a new wave of recession. A few quarters of extremely weak growth after a prolonged recession and it becomes harder to consider the ending of the European crisis. Actually, it is the risk of a return of a recession that worries the IMF.
But this time, the recession could lead to a prolonged deflation. As shown by the Japanese experience to get out of a deflationary spiral it is still necessary to resort to a massive release of liquidity. And the longer the ECB delays the difficult decisions, the harder will be their subsequent implementation. Consider the decision with the deposit rate - it is difficult to call timely.
As before I am holding the short-term deals to buy, as the price is increasing in the current channel. Partly the bulls can gain positivity bulls from the data on the European trade balance, but overall growth would hardly be long lived. Still, after the recent actions of the ECB and the Fed, the maximum that the bulls can count on is just short-term a correction, followed by a continuation of the downward movement.
RoboForex research department Stanislav Koval
Despite the unprecedented measures taken by the ECB to deal with low inflation, the IMF considered them insufficient. In the latest report the IMF calls on the European monetary authorities to follow the example of the Fed, starting a large-scale purchase of Eurobonds in order to stimulate economic growth. IMF fears are more than understandable, despite the seriousness of the decisions taken by Mario Draghi, their effectiveness is far from obvious.
Although the so-called quantitative easing has been firmly stuck in the toolbox of the major regulators, there is virtually no experience in the combination of a negative deposit rate with offering cheap loans to commercial banks. The latest statistics from Germany also add fuel to the fire, where the end of May producer prices dropped by 0.2%, after last month’s decrease by 0.1%.
At the ECB, however, it is believed that the measures taken to stabilize the inflation rate are more than sufficient. According to a member of the Governing Council of the ECB Benoit Kerr, in the present circumstances massive purchases of securities are not required. Later, he clarified that the measure is still in the palette of measures of the ECB, but the question about its use will be relevant only if inflation continues to remain at low levels.
However, statistics continue to remain weak. Therefore, a logical question arises whether it is right to call the current situation a recovery, or just a breather before a new wave of recession. A few quarters of extremely weak growth after a prolonged recession and it becomes harder to consider the ending of the European crisis. Actually, it is the risk of a return of a recession that worries the IMF.
But this time, the recession could lead to a prolonged deflation. As shown by the Japanese experience to get out of a deflationary spiral it is still necessary to resort to a massive release of liquidity. And the longer the ECB delays the difficult decisions, the harder will be their subsequent implementation. Consider the decision with the deposit rate - it is difficult to call timely.
As before I am holding the short-term deals to buy, as the price is increasing in the current channel. Partly the bulls can gain positivity bulls from the data on the European trade balance, but overall growth would hardly be long lived. Still, after the recent actions of the ECB and the Fed, the maximum that the bulls can count on is just short-term a correction, followed by a continuation of the downward movement.
RoboForex research department Stanislav Koval
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Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.