Are the ECB’s choices understandable? – Natixis
Patrick Artus, Research Analyst at Natixis, explains that the euro-zone economy is improving markedly, the unemployment rate is nearing the structural unemployment rate and deflation is no longer a threat, and yet the ECB is keeping a highly expansionary monetary policy in place.
Key Quotes
“Is this choice understandable?
- We do not believe that it truly results from a desire to lift inflation to close to 2%, now that deflation is no longer a threat;
- It may result from the idea that even when the economy is close to full employment, demand stimulus can have positive effects: increasing the participation rate, encouraging companies to make productivity gains;
- It may also result from concern at what could ensue should the bond bubble burst in the euro zone: crisis among institutional investors, public finance crisis.”
“Conclusion: It is not so easy to understand the ECB
Why is the ECB keeping an expansionary monetary policy in place when the euro-zone economy is improving?
- We do not believe that it is only to lift inflation;
- It may be to try and lift the participation rate or labour productivity by stimulating demand at full employment;
- It may be to prevent the risk of insolvency from materialising should the bond bubble burst.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
