European Central Bank (ECB) began on Monday a long-awaited purchase of government bonds as part of its program of quantitative easing worth 1.1 trillion. euros. The big question facing the eurozone is whether these measures will suffice to strengthen the region’s economy, writes the Financial Times. Analysts could hardly distinguish the effects of money printing by other factors such as cheap oil and the risk of Greece’s exit from the monetary union, but the edition identifies five indicators which can judge whether the benefit from the ECB’s efforts.
Unlike the US Federal Reserve ECB has no mandate to maintain job creation and growth. The main objective of the bank is to keep inflation close to but below 2%. Despite the repeated lowering of interest rates and other measures, the ECB fails to achieve this goal two years and recently eurozone fell into deflation for the first time since 2009. “Rising inflation is the most important yardstick for the success of quantitative easing,” says Nick Matthews, an economist at Nomura. No less important are inflation expectations. ECB predicts that this year there will be inflation, but in 2017 will be achieved increases in consumer prices of 1.8%. According to the bank’s president Mario Draghi must return the confidence of the markets in the institution’s ability to keep inflation levels.
2. Weak Euro
ECB quantitative easing comes amid appreciation of the dollar on expectations the Fed to take interest rates rise. Differing policies of the two major central banks in the world sent the course of the single currency 12-year low against the dollar as the ECB hopes to continue depreciation. Besides the exchange rate should be paid attention to the trade data, notes FT. If the single currency remains weak, this will make eurozone manufacturers more competitive on the external and the internal market.
Mario Draghi believes that after years of crisis and stagnation in the euro area economy finally is headed in a positive direction, not least because the measures of the ECB. But analysts point out that printing money is not a panacea. The economic success of the euro will depend on other factors as trust can not return completely, while unemployment remains worryingly high, and political risks in much of the region grow. ECB forecasts economic growth in the region to reach 1.5% in 2015, 1.9% in 2016 and 2.1 percent in 2017 from higher growth in the euro area could benefit and Bulgaria as the EU is the biggest trading partner On the side.
The collapse of lending is among the vats signs of economic problems in the eurozone. The program for the purchase of assets should help by forcing banks to sell government securities to direct their funds to riskier assets or increase lending. Already some signs of improvement in lending to businesses and households. In this regard it is important to monitor the quarterly reports of the ECB’s lending and interest rates of loans in the region. But experts do not expect rapid credit growth due to still fragile confidence and the likelihood the banks do not want to shift your focus to more risky assets because of tighter capital requirements.
5. Negative interest
One of the biggest issues facing the markets is to what degree will deepen trend yields on government bonds in the region to go into negative territory. According to JPMorgan securities of euro area countries worth over 1.6 trillion. euro traded at negative interest rates. This means that investors pay to invest their capital in the debt of countries like Germany, which is considered extremely safe. Before the ECB announced its program of quantitative easing on January 22, the value of bonds with negative interest in the region was 350 billion. Euros. The ECB announced that it would purchase securities and interest to -0.2% as part of the program.