Home' Trinidad and Tobago Guardian : March 8th 2015 Contents MARCH 8 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG13
The European Central Bank
will unleash its 1.1 trillion
euro (US$1.2 trillion) stim-
ulus programme on Mon-
day---and says the
prospect is already boost-
ing the eurozone econo-
my.Mario Draghi, the bank s president, said
consumers and businesses in the 19 euro
countries are benefiting not only from cheap-
er energy prices but also from optimism
over the coming stimulus.
He cited "a significant number of positive
effects" from the January announcement of
the massive stimulus plan, on top of previous
efforts to loosen credit to businesses. Bor-
rowing conditions are already considerably
easier, he noted.
"Looking ahead, we expect the economic
recovery to broaden and strengthen," Draghi
told reporters after the bank kept its key
interest rate on hold at its monthly meeting
Thursday. The comments helped push up
European stocks and sent the euro to a 12-
The ECB raised its eurozone growth fore-
cast for this year to 1.5 per cent from 1.0 per
cent amid signs credit is flowing more easily.
Draghi cautioned that some member states
failure to make pro-growth reforms would
dampen the recovery.
He said the ECB would on Monday start
buying 60 billion euros (US$67 billion) a
month in government and corporate bonds.
The purchases with newly printed money
aim to drive down market interest rates,
stimulating lending and growth and raising
the rate of inflation, which is dangerously
low at minus 0.3 per cent.
The currency union still faces serious risks
as it tries to recover from a crisis over gov-
ernment debt in countries such as Greece,
Portugal, Ireland, Spain and Italy. Growth
is returning, overcoming the drag from gov-
ernment spending restraint and higher taxes.
But progress is lagging on reforms by member
countries such as France to cut regulations
on hiring and firing and reduce red tape that
discourages business growth.
And Greece is still struggling to avoid a
default on its debts that could force it to
leave the euro. A Greek departure could
undermine belief in the solidity of the cur-
rency union and hurt governments ability
to borrow affordably.
"It is clear that the ongoing risk of a Greek
exit from the eurozone, and the financial
fallout in other vulnerable economies, con-
tinues to pose a risk to confidence in the
eurozone and firms willingness to invest
and create jobs," said Tom Rogers, senior
economic adviser to the EY eurozone fore-
The currency union s economy grew 0.3
per cent in the last three months of 2014
from the quarter before. Unemployment has
started to fall but remains high at 11.2 per
In an effort to bolster confidence in the
recovery, the ECB said it will keep buying
bonds until September next year, and in any
case until inflation rises from levels consid-
ered dangerously low.
Economists say hopes for the stimulus
programme are one reason the economy is
showing signs of life. Lower oil prices are
another, and so is a weaker euro, which helps
The euro traded at a 12-year low against
the dollar at US$1.1000 after Draghi s com-
Draghi underlined the central bank s com-
mitment to support Greece, but within the
ECB s rules. Greece is trying to find a way
to win more bailout loans from the other
eurozone countries, and has four months to
submit a convincing plan to turn its economy
and finances around.
Draghi said the ECB "stood ready" to once
again permit Greek banks to use junk-rated
Greek government bonds as collateral to get
credit from the ECB. That would happen as
soon as the bank assesses that Greece is
likely to successfully complete a creditor
review of its progress.
Inability to use the bonds as collateral has
forced the banks to rely on more expensive
emergency credit from the Greek central
The ECB held its meeting in Nicosia, the
capital of the Mediterranean island state of
Cyprus, one of two meetings per year it
holds away from its headquarters in Frankfurt,
The Bank of England marked the sixth anniversary
of its cutting interest rates to a record low by keeping
them on hold once again on Thursday, but an improv-
ing economy suggests rates are likely to rise at some
point over the next 12 months.
While no economist polled by Reuters expects the
Monetary Policy Committee will vote to raise rates
before a May 7 national election, given record low
inflation, there are signs that policymakers believe
a rate hike could come sooner rather than later.
The BoE said on Thursday it was keeping rates at
0.5 per cent, their level since the depths of the financial
Minutes of the meeting, explaining the debate
among rate-setters, are due to be published in just
under two weeks time.
Business surveys this week showed Britain s econ-
omy started 2015 strongly, and wage data in the next
few months could provide some policymakers with
enough evidence that it can start to be weaned off
low borrowing costs.
Two policymakers, Martin Weale and Kristin Forbes,
warned recently that rates could rise in the near
future if inflation picks up strongly from current low
Another MPC member Ian McCafferty, who voted
with Weale to hike rates from August through Decem-
ber, has said he will keep a close eye on wage data
over the next few months before deciding whether
to resume voting for higher interest rates.
But now though, most MPC members seem content
to wait and see how far inflation plunges before con-
sidering a rate hike.
Last month s quarterly economic forecasts from
the BoE showed consumer price inflation is likely to
turn negative for the first time on record in the next
Governor Mark Carney has said he expects the
BoE to raise interest rates as its next move although
he said more stimulus could be required if inflation
stayed around zero for more than a year.
The timing of a first interest rate hike from the
US Federal Reserve will also weigh on BoE policy-
Seven of the 17 members of the Fed s policy com-
mittee have now said they at least want the option
of a June tightening on the table.
The situation in Britain stands in contrast to the
euro zone, where the European Central Bank is due
to flesh out its bond-buying stimulus plan later on
Bank of England
European Central Bank:
European Central Bank
head Mario Draghi
speaks as Cyprus'
central bank chief
after a press conference
during bank's Governing
Council meeting at a
conference center in
Thursday, March 5, 2015.
The struggling eurozone
economy is picking up
momentum ahead of the
launch next week of a 1.1
trillion euro (US$1.2
Central Bank head
Draghi said. The central
bank for the 19-country
eurozone raised its
growth forecast for this
year to 1.5 per cent from
1.0 per cent amid signs
credit is flowing more
easily to businesses.
The Bank of England is seen, with a statue in the foreground, in the City of London
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