The European Central Bank has no plans to end its policies of negative interest rates and monetary easing, according to a report from Reuters.
Peter Praet, the ECB’s chief economist, and a member of the bank’s executive board, just gave an interview with Belgian magazine Knack and the translation provided by Reuters is bad news for anyone hoping for an ECB interest rate hike any time soon.
“The ECB will continue its policy for as long as required,” Praet told Knack. “What needs to change before we adjust the policy? Simple. Inflation must move in a sustainable way towards 2 per cent.”
The basic idea behind the ECB keeping rates below zero is that it discourages people from storing money in bank accounts (where they will lose money), and instead pushes them to spend, stimulating the economy, and helping to push up inflation to a healthy level. The ECB’s current deposit rate is -0.3%.
As well as the ECB, banks in Switzerland, Sweden, and Denmark all already have negative rates. There are fears, however, that negative interest rates may have the opposite effect to what is desired, something Business Insider’s Jim Edwards explored in November.
Given that inflation has been at less than 1% since October 2013 and hasn’t shown any real signs of life, it could be a while before the ECB raises rates.
The bank’s chief economist told Knack: “If we look at the economic situation, I think that the current policy will certainly be in place until March 2017 and longer if necessary.”
The ECB could also cut the deposit rate further if inflation continues to stagnate at around its current level of 0.2%.
The ECB QE programme only began in January 2015, six years after the US and UK central banks began theirs. It’s known as being much more institutionally conservative, but it’s rapidly catching up in terms of what it’s willing to do.
At the ECB’s December meeting, boss Mario Draghi disappointed the markets by cutting the deposit rate from -0.2% to -0.3%, less than was expected. The move sent the Euro skyrocketing against all major currencies, including a massive 3% gain against the dollar.
Since then, the Federal Reserve has raised base rates for the first time in more than six years, and speculation is growing that Bank of England governor Mark Carney is planning a hike at some point soon.
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