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ECB sticks to verbal QE

Published Friday, April 4th, 2014

Deflation stalks the Eurozone. It has caught hold in 5 members and threatens to spread to the remaining 13. Deflation increases debt burdens and encourages consumers to put off buying decisions. Christine Lagarde, head of the IMF, has been pleading for the ECB to embrace monetary easing concerned that prolonged “low inflation” is undermining all of the benefits that have come from belt tightening and structural reform.

The ECB is targeting an inflation rate of 2%. It has been running at below the “danger level” of 1% for several months and slipped to 0.5% in February. In addition the euro is far too strong nullifying the efforts of the weaker members of the Eurozone to improve their competitive position.

The stage was therefore set for the ECB to deliver some interesting announcements yesterday, even though the market suspected they would drag their feet again. The market was right. The ECB acknowledges the dangers but once again found excuses not to act.

To read the rest of the report, please click here 

Posted by David Hufton