Francois Villeroy de Galhau, a policy designer of the European Central Bank (ECB), said on Monday that the Central Bank still has “margin to cut the rates in Europe”.
Additional comments
- We are at the time of great economic uncertainty.
- However, you do not see any additional inflation in the area.
- No recession in France, Europe.
- Trump policy, US protectionism does not work.
Market reaction
EUR/USD will be left out of these comments, adding 0.10% per day to trade near 1.1375.
ECB
The European Central Bank (ECB) in Frankfurt, Germany, is a Eurozone reserve bank. The ECB sets interest rates and manages the monetary policy of the region. The main authority of the ECB is to maintain price stability, which means keeping inflation about 2%. Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates usually lead to a stronger euro and vice versa. The ECB Council makes monetary policy decisions at meetings eight times a year. Decisions are made by Christine Lagarde, President of the EURSUONE and six permanent members, including ECB President.
In extreme situations, the European Central Bank can establish a political tool called quantitative alleviation. QE is a process in which the ECB prints the euros and uses them to buy banks and other financial institutions – usually government or company bonds. QE results in a weaker euro. QE is the last option if you are unlikely to achieve interest rates simply the purpose of price stability. The ECB used it during a major financial crisis in 2009-11, 2015, when inflation remained stubbornly low, as well as during the cozy pandemic.
Quantitative effort (QT) is the opposite of QE. This is done after the QE, when the economic recovery is underway and inflation begins to rise. If the European Central Bank (ECB) buys in QE, the bonds of the government and the companies are buys the bonds of the financial institutions to provide them with liquidity, the QT ECB stops buying more bonds and stops reinvesting, which is already maturing, which is already maturing with their bonds. Usually it is positive for the euro (or bullish).
