As expected, the European Central Bank (ECB) signalled it is preparing to cut short-term interest rates for the first time since 2016 and restart a giant bond-buying programme in a significant policy shift. The aim is to insulate the wobbling euro zone economy from global headwinds.

The ECB’s next policy meeting is on 12 September. We feel that it is increasingly looking as if the September meeting will bring not only a single measure but rather a package of several measures.

• As expected, the European Central Bank (ECB) signalled it is preparing to cut short-term interest rates for the first time since 2016 and restart a giant bond-buying programme in a significant policy shift. The aim is to insulate a wobbling euro zone economy from global headwinds ranging from trade tensions to Brexit.

• The move underscores the ECB’s activism under its departing president Mario Draghi, whose aggressive stimulus policies recently caught the attention of President Trump who had attacked Draghi, complaining that Draghi had weakened the euro at the expense of US firms. However, later suggested that he might like to hire Draghi for the Federal Reserve.

• The ECB’s decisions will be felt long after Draghi steps down in October. While it stopped short of immediate action, the ECB’s clear signal of intent raises the pressure on other major central banks, including the Fed, to follow suit with interest rate cuts.

• In a statement, the ECB said it was “determined to act” to prop up inflation rates that have persistently undershot the central bank’s target of just below 2%, a target which the economic slowdown has put further out of reach. The economic outlook “is getting worse and worse”, especially in manufacturing.

• The ECB’s next policy meeting is on Sept. 12. We feel it now increasingly looks as if the September meeting will not only bring a single measure but rather a package of several measures.

Source: AmInvest Research - 26 Jul 2019