Mario Draghi signalled that he is preparing an arsenal of stimulus measures to jump-start growth and boost inflation
CENTRAL BANKERS HAVE historically been compared to party hosts, tasked with taking away the punchbowl before things get out of hand. At the moment, however, their job is to keep the drinks flowing.
The European Central Bank has most to do. Europe’s economy is ailing: figures released on July 24th show that manufacturing activity, as measured by the purchasing managers’ index, is at its weakest level since 2013. Inflation is stubbornly low . Fearing a downturn, investors have piled into safe-haven government bonds, driving yields below zero. On July 25th, Mario Draghi, the bank’s boss, signalled that he is preparing an arsenal of stimulus measures to jump-start growth and boost inflation.
Alas, the ECB has little room for manoeuvre. The bank’s benchmark rate is currently -0.4%. Economists reckon that banks might soon stop passing on further rate cuts, for fear that depositors might yank their cash out of accounts rather than pay banks to hold them. And in order to expand QE significantly, the ECB would have to lift its self-imposed limit on the share of a country’s debt it can own.
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