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Citing sources with knowledge of the matter, Reuters reported on Wednesday that the “European Central Bank (ECB) policymakers are starting to debate whether rates will have to go below neutral level in current easing cycle.” One source said, “I think neutral is not enough”, suggesting that the ECB aiming for lower rates by much more in the coming months. Market reaction At the time of writing, EUR/USD is trading unfazed near 1.0800, posting small gains on the day. ECB FAQs The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde. In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic. Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is…

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Filed under: News - @ October 23, 2024 5:19 am