ECB: Debates about Further Measures in Monetary Policy
Today the 23 member of the European Central Bank’s Council have initiated debates about the the stance of monetary policy. The base rate, lowered to 0.25 percent last month, is expected to remain unchanged.
ECB: Debates about Further Measures in Monetary Policy / Picture: © Vindobona.org
Experts do not consider the European Central Bank (ECB) to take further measures in loosening the monetary policy. Around a month ago the ECB lowered the base rate by 0.25 percent to a new record low to 0.25 percent from 0.5 percent. The extremely low inflation in the Eurozone (0.7 percent in October) was the reason for this measure, as announced by the ECB in Frankfurt. Central Bankers have been emphasizing that 0.25 percent was enough room to tackle the Eurocrisis. According to announcements by member of the Council, the base rate will remain at 0.25 percent for the time being. However, it is still unclear whether or not other measures in the fight against the credit crunch in several Eurozone member countries will be made.
One option is further capital injections based on the model of the two tenders where the ECB inserted more than one trillion Euros at the end of 2011 and at the beginning of 2012 in the financial system of the single currency union. Moreover, a decrease in the minimum reserves could help improve the financial situation of the banks. According to the ECB, the ailing financial institutes are one of the key problems in the Eurozone and reason for the sluggish pace of economic recovery. Negative interest rates, however, will only be the last option and will only be applied in extreme cases.