Abu Dhabi, UAEFriday 20 September 2019

Fresh round of stimulus expected for flagging eurozone

Consumer price inflation last month grew at its slowest rate since mid-2016

Expectations are growing that the European Central Bank in Frankfurt will embark on a fresh round of stimulus as eurozone inflation remains stubbornly below target rates. AP
Expectations are growing that the European Central Bank in Frankfurt will embark on a fresh round of stimulus as eurozone inflation remains stubbornly below target rates. AP

Inflation across the 19-country eurozone was revised down for July, official figures showed on Monday, bolstering expectations that the European Central Bank will provide another shot of stimulus to the single currency bloc next month.

Eurostat said consumer prices across the eurozone were up 1 per cent in the year to July, its lowest level since mid-2016, from the previous month's 1.3 per cent. July's rate was revised down from an original estimate of 1.1 per cent and means it is further away from the ECB's goal of little below 2 per cent.

The core rate, which strips out the volatile items of energy, food, alcohol and tobacco, was even lower at 0.9 per cent, though unrevised from the original estimate. That highlights the fact that underlying price pressures remain subdued.

With eurozone growth faltering particularly in Germany where the economy contracted in the second quarter of the year, there are growing expectations that the bank will announce another package of monetary stimulus measures including a possible rate cut and bond purchases at its September 12 meeting.

"With inflation stuck well below target, today's data further supports our forecast of a stimulus package at the ECB's September meeting," said Rosie Colthorpe, European economist at Oxford Economics.

Analysts say the ECB could cut its deposit rate on money left overnight at the ECB by commercial banks from minus 0.4 per cent to minus 0.5 per cent. The unusual negative rate is in effect a penalty aimed at pushing banks to lend excess cash rather than letting it pile up at the ECB.

ECB President Mario Draghi has also said the bank has asked staff to study a possible re-start to the bond-buying stimulus programme, which pumps newly-created money into the financial system. It was only last December that the ECB halted its nearly four-year bond-buying program, which pumped €2.6 trillion (Dh10.6tn) into the eurozone economy in an attempt to revive it and get inflation up toward the bank's goal.

The anticipated stimulus package would cap a momentous period at the helm for Mr Draghi, who is due to be replaced by Christine Lagarde, the former head of the International Monetary Fund, this autumn.

Updated: August 20, 2019 01:00 PM

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