ECB Warns Slowdown Isn't Temporary: Draghi Announces Bold Stimulus Plan

-edited

Mario Draghi surprised even the doves with his bold new stimulus plan. It won't help one iota.

The Wall Street Journal reports ECB Reverses Course With New Stimulus Measures.

The European Central Bank made a major policy reversal Thursday, unveiling plans for fresh measures to stimulate the eurozone’s faltering economy less than three months after phasing out a €2.6 trillion ($2.9 trillion) bond-buying program, making it the first rich-country central bank to ease policy in response to the global slowdown.

The ECB said it would hold interest rates at their current levels at least through the end of this year—months longer than previously signaled—and announced plans for a fresh batch of cheap long-term loans for banks. The first loans will be launched in September, each with a maturity of two years.

Despite the new stimulus, ECB President Mario Draghi said that the risks to the economy remain prevalent, though the likelihood of a recession is very low. Thursday’s decision was unanimous, he said at a press conference. “Given the complexity of the package, I think this is a very positive sign,” he added. The ECB also slashed is forecast for gross domestic product growth this year to 1.1% from 1.7% in December. It lowered its inflation projection to 1.2% from 1.6%, further below the ECB’s target of just under 2%.

Still, the ECB refrained from more extreme measures such as restarting its bond-buying program or cutting its deposit rate further from minus 0.4%. These options weren’t discussed, Mr. Draghi said. “In a dark room, you move with tiny steps,” he said.

Bold New Plans

Please consider ECB's Draghi Surprised Colleagues with Bold Stimulus Plans.

European Central Bank President Mario Draghi caught even dovish rate-setters off guard by pushing on Thursday for unexpectedly generous stimulus after forecasts showed a large drop in economic growth, four sources familiar with the discussion said.

At its policy meeting, the ECB delayed its first post-crisis rate hike into 2020 and offered banks more ultra-cheap loans, arguing that persistent uncertainty from a global trade war to Brexit was causing lasting damage to the euro zone economy.

Policymakers had not expected to change their guidance on interest rates. But Draghi confronted them with forecasts showing growth at just 1.1 percent in 2019, less than half what the ECB predicted a year ago, and proposed a wider set of measures than rate-setters had prepared for, the sources said.

“Growth is below trend now and the output gap is opening up again,” one of the sources said. “It’s is worrying because very little of this slowdown is actually temporary.”

The exceptionally weak growth projection, along with a notable drop in lending, was also the reason why the ECB went ahead with announcing a fresh round of longer-term loans to commercial banks, while giving itself more time to working out the details.

“There was wide agreement that it was right to act now because waiting until April would not have made much sense,” a third source added.

Bold New Plans?

I fail to see what's bold or new as Reuters reported. After all, this is "the dark room".

I like that self-admitted description because central barkers are always in the "dark room".

Makes No Difference

The idea that a one month delay makes any difference is ludicrous, but that is how central bankers think.

Draghi wanted to pledge to hold rates low until April 2020, but to get a unanimous opinion, he agreed to hold rates only until the end of 2019.

It makes no difference if the action is unanimous or not. And it also makes no difference what their stated plans are, because they can and will change them, as they just did.

Recession Odds

Draghi says the odd of recession are low. That's a lie and he knows it.

The Eurozone is close to if not in recession right now. Draghi's unexpected actions prove as much.

Mike "Mish" Shedlock

Comments (17)
No. 1-9
offintherough
offintherough

The man looks like he died six months ago.

offintherough
offintherough

This was guaranteed...no way this was going to fall apart in the 11th hour of Draghi's impending retirement...he has now made sure his legacy departs intact.

lol
lol

Central banks signaling that they are preparing to print around the clock,objective is to well... own everything.All major CB's will be in full QE ie the printing presses runnin non stop white hot,fed will launch 4 by spring to fund the massive $2 trillion in red ink this year!

2banana
2banana

Sometimes I am amazed that gold is not at $10,000 an ounce

Bam_Man
Bam_Man

"central barkers" As in, "barking mad"?

AWC
AWC

I thought we had this all figured out? It's QE Forever. MMT is now firmly entrenched in Political/Economic circles. Case closed.

BoneIdle
BoneIdle

More can kicking. This time even the man in the street knows there’s a financial crash in the near distant future. The general public will start to deleverage out of debt. Any disposable income (if any) will go to servicing any debt. Deflation is on the menu whatever exotic financial policies the CB’s will attempt.

Casual_Observer
Casual_Observer

Only a matter of time before job growth stalls. 2019 CFO survey said companies expect net job cuts in 2019. 76k jobs cuts in February and 20k job gains.

Escierto
Escierto

Thank God that Draghi is done in October of this year. They should put him in prison after he is leaves or better yet, execute him! After that they need a German in charge of the ECB to exercise some discipline on these losers.