The European Central Bank has confirmed that interest rates within the Eurozone will not be raised until next year as there is evidence of economic slowdown in 19 nations that are part of the region and use the same currency. The ECB has also announced a round of economic stimulus to engage growth in the economies of these nations by offering them loans at low rates of interest. This unexpected move has come amidst discussions about the ECB’s earlier announcement about sharp cuts in forecast of both growth and inflation levels this year.
This announcement by ECB has led to fall in euro’s level by 0.6% against the dollar and 0.1% against the pound. Central Bank stated that rates would remain at current levels instead of previous guidance level till summer. ECB president Mario Draghi stated that economic data showed only moderation in growth and it is expected to remain at level of 1.1% this year as compared to previous prediction of 1.7%. Inflation levels are thankfully lower at 1.2% when compared to earlier forecast of 1.6%. Mr. Draghi said that EU is going through a period of weakness and uncertainty and near term growth outlook is likely to be weaker than anticipated.
In view of economic slowdown there is no likelihood of interest cuts or increase for this year but the ECB is using a couple of tools to ease the situation. It has announced plans for targeted long-term refinancing operations which are called TLTRO which refers to loans made to small commercial banks by ECB to simulate lending to all sectors for business. These loans are intended to ensure smooth transition of monetary policy. Slowdown and trade wars between US-China have pushed Italy into recession last year. ECB is also likely to adopt new lending facility for other banks called Targeted Longer-Term Refinancing Operations.