Lots of mixed messages in this piece, at the end of the Draghi era. Demand is on the floor it seems after years of ZIRP, to the extent that banks must be ‘paid to lend’, yet employment and wage growth is strong. Does not compute.
While we finish with some hope that the elusive ‘recovery’ is delayed not derailed.
En attendant Godot
ECB pushes back rate hike and offers to pay banks to lend
The European Central Bank pushed back the timing of its first post-crisis interest rate hike again today.
The ECB also said it would continue paying banks for lending in its latest effort to revive a slowing euro zone economy.
The moves, which are bolder than analysts had expected until only a few weeks ago, come as a trade war between the US and China overshadows the global economy and especially export-oriented euro zone countries such as Germany. Responding to rapidly deteriorating inflation expectations, the ECB pledged to keep its interest rates at their current, record-low level at least until the first half of 2020, instead of the end of this year as it had said only in March.
ECB President Mario Draghi told a news conference that risks to the euro area economy remain tilted to the downside, citing geopolitical uncertainty, the rising threat of protectionism and vulnerabilities in emerging markets.
With a global trade war weighing on confidence, industrial production and exports have taken a dip, exacerbated by a string of domestic difficulties, from German industry’s struggles to Italy’s looming budget fight with the European Commission.
But solid wage growth, record-high employment and healthy first quarter growth figures suggest the economy is still resilient, reinforcing the ECB’s expectations that the recovery is delayed, not derailed, he added.