The European Central Bank has cut its benchmark interest rates and introduced stimulus measures amid a rapid decline in inflation and manufacturing output. The ECB president has also stated that the Bank would begin purchasing private financial sector assets in October. In a further attempt to stimulate economic activity, it also cut its deposit rate, which was already negative, to minus 0.2 per cent. These largely unexpected moves have ramifications for the global economy, and for India.
Globally, they reinforce the trend of central banks pursuing loose monetary policies in order to spur investment and consumption, to boost growth. The United States Federal Bank and the Bank of England have both been pursuing far more aggressive stimulus measures, including quantitative easing. Though the ECB’s latest moves are still not as aggressive, they align its policy stance with that of other major financial markets. Such measures signify that central banks will continue to adopt policies to promote investments and increase liquidity in the markets. For the eurozone, however, the ECB’s moves need to be complemented with reforms within member countries. The Bank has reduced lending and deposit rates to all-time lows, and the onus is now on member nations to take the required corrective measures.
