Friday, April 25, 2025
5:18 AM
Doha,Qatar
*

ECB is in no rush to ease policy after Brexit vote

The European Central Bank is in no rush to ease monetary policy in response to Britain’s vote to leave the European Union, taking comfort in a calmer-than-feared market reaction, bank officials said yesterday.
The Brexit vote has sunk bank shares, weakened the euro and will lower growth, raising market pressure on the ECB to step in, adding more stimulus.
But conversations and public comments from over a dozen officials familiar with the ECB’s thinking showed that the bank has found some reassurance in the market rebound this week and was happy to take a wait-and-see stance, given the lack of hard evidence about the actual impact of Brexit.
Indeed, ECB Vice President Vitor Constancio said that markets were already rebounding, banks suffered no liquidity shortage and economic fundamentals were broadly unchanged, so the ECB needed to wait to assess if any response was needed.
Emergency swap lines designed to provide euros to UK banks in case of stress had not been activated and the market turmoil reflects lower growth prospects, not panic, other ECB sources, who asked not to be named, said.
“This is a political problem not a monetary phenomenon,” one of the sources said.”We could act, we have the tools, but that would not solve the broader problem and for now, every estimate about the actual impact of Brexit is nothing but guesswork.”
If markets continued in the same, calm vein in the run up to the ECB’s July 21 policy meeting, the most to expect could be verbal reassurance that the bank stands ready to do more if needed, the officials said.
But a more severe economic downturn would not be for the ECB to handle, requiring others to step in, Constancio warned.
“In monetary policy, we still have instruments,” Constancio said.”But it’s true that we have been using a lot of those instruments, we are aware and everyone is aware of that.”
“So, if the consequences would be more severe in economic terms what could be done, if anything? But it’s with other authorities, it’s not then with the ECB,” he added. For now, the officials expressed relief at the sanguine reaction of investors in sovereign debt.
Southern Europe’s borrowing costs fell sharply for a third straight day and French bond yields hit record lows yesterday.
The calm on the sovereign bond market marked a sharp contrast to the 2010-12 debt crisis, when a ‘doom loop’ between indebted governments and their main creditors, banks, threatened the euro’s very existence, the sources noted.
“Markets priced in a lower growth path, both for the eurozone and the UK,” one source said.”It seems quite realistic now and I don’t see significant overreaction.”
Still, this line of thinking may put the ECB on a collision course with markets, which have rebounded at least partly in the hope that the ECB and the Bank of England would step in with more stimulus.
Investors now fully price in a rate cut in Britain and the eurozone by the end of this year. The ECB cut rates twice since December and is already buying €80bn ($88.71bn) worth of assets, mainly eurozone government bonds, every month in a bid to boost inflation. These purchases helped soothe market nerves when a Greek referendum on the terms of its bailout agreement with creditors almost pushed the country out of the eurozone last summer and the reaction to the UK vote was seemingly following the same path.
The sources said that any further move by the ECB to support markets, while possible in theory, would merely act as stop-gap and do nothing to address fundamental citizen and investor concern about Europe’s political cohesion and economic strategy.
In fact, a new interest rate cut could even exacerbate problems at eurozone banks, which have complained that low lending rates and a charge on the money they park at the ECB were squeezing their margins, some of the sources said.
There was agreement among the officials who spoke to Reuters that the broad selloff in banking shares cast the sector as the weakest link in the European economy, with its meagre profits and, in countries such as Italy, heavy burden of bad loans making it vulnerable to any economic downturn.




Comments
  • There are no comments.

Add Comments

B1Details

Latest News

SPORT

Canada's youngsters set stage for new era

Saying goodbye is never easy, especially when you are saying farewell to those that have left a positive impression. That was the case earlier this month when Canada hosted Mexico in a friendly at BC Place stadium in Vancouver.

1:43 PM February 26 2017
TECHNOLOGY

A payment plan for universal education

Some 60mn primary-school-age children have no access to formal education

11:46 AM December 14 2016
CULTURE

10-man Lekhwiya leave it late to draw Rayyan 2-2

Lekhwiya’s El Arabi scores the equaliser after Tresor is sent off; Tabata, al-Harazi score for QSL champions

7:10 AM November 26 2016
ARABIA

Yemeni minister hopes 48-hour truce will be maintained

The Yemeni Minister of Tourism, Dr Mohamed Abdul Majid Qubati, yesterday expressed hope that the 48-hour ceasefire in Yemen declared by the Command of Coalition Forces on Saturday will be maintained in order to lift the siege imposed on Taz City and ease the entry of humanitarian aid to the besieged

10:30 AM November 27 2016
ARABIA

QM initiative aims to educate society on arts and heritage

Some 200 teachers from schools across the country attended Qatar Museum’s (QM) first ever Teachers Council at the Museum of Islamic Art (MIA) yesterday.

10:55 PM November 27 2016
ARABIA

Qatar, Indonesia to boost judicial ties

The Supreme Judiciary Council (SJC) of Qatar and the Indonesian Supreme Court (SCI) have signed a Memorandum of Understanding (MoU) on judicial co-operation, it was announced yesterday.

10:30 AM November 28 2016
ECONOMY

Sri Lanka eyes Qatar LNG to fuel power plants in ‘clean energy shift’

Sri Lanka is keen on importing liquefied natural gas (LNG) from Qatar as part of government policy to shift to clean energy, Minister of City Planning and Water Supply Rauff Hakeem has said.

10:25 AM November 12 2016
B2Details
C7Details