Will ECB initiate QE again?

The next ECB meet is to be held on September and that would be the last meeting for Mr. Mario Draghi, the present ECB president whose term is coming to an end in this October. In the earlier meet which was held on July 25, Mr. Draghi hinted for a stimulus package to be introduced again in the next meet. The factors for QE are:

Manufacturing and Inflation:

Mr. Draghi is totally frustrated with the manufacturing output. It’s declined in July from 45 to 43.1. It indicates that the economy is nearing to recession.  The reason for fall in manufacturing data is because of China as they are the largest importers for automobiles from Europe. The new orders also tumbled down to 2012 levels. The services and construction output in Eurozone is also falling down. The inflation rate is still below 2%, it is stable between 1.2 to 1.3%. To boost up the inflation to reach 2% annually and to improve manufacturing ECB has to initiate the stimulus package again.

What are the key factors to decide central bank rate?

 

Global factors:

The global factors like trade war and the Brexit in which the Britain will move out of European Union without an agreement and the global economy is slowing down as global central banks looking for rate cuts including U.S. This makes the ECB to think for stimulus package.

What affects the global market?

Bonds:

The German 30 year bond yield was down to a record low of 0.167%. The 10 year bond also fell down below  -0.4%. This is because of the deposit rate of commercial banks to central bank is -0.4% and their cash borrowing rate from central bank is zero. Draghi is will to purchase bonds as stimulus package but some of the members are opposing for bonds. German politicians, industrial chiefs has moved to court against ECB for fresh bond purchase. They say that the ECB’s move of bond purchase is illegal. Earlier in 2015, when ECB introduced the Outright Monetary Transactions the German politicians and industrial chiefs also challenged the ECB in court but it was ruled out by judges and favored the ECB.

How bond markets plays a vital role in economy?

So, ECB’s chances of re-introducing the QE in the next meeting is highly visible.

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