Euro Zone: rates close
to zero.
While most analysts predicted the maintenance of interest rates,
Mario Draghi surprised them all. The President of the European Central Bank
astonished everyone by announcing two major changes in the ECB policy.
Far from the monetary policy standard for 10 years (2%), the inflation
decline (0.7% in October, the lowest level since 2009) is a concern. It is
clear that the risk may persist over an even longer period; President Mario
Draghi announced a cut in interest rates by 25 basis points, from 0.5% to 0.25%.
The president decision is not due to the strong European currency.
The biggest surprise of the speech is the reduction of deposit
rates. Since they are already zero, the new measures are to make them negative,
to encourage banks to give more loans to businesses and households in order to
boost the economy. The refinancing banks programs, which would expire in
February 2015, will be extended. The ECB will continue to inject liquidity
until July 2015.
We will have to wait for next year to assess the changes adopted
by the Euro protectors. Despite good economic measures, precautions should be
taken. The Euro declined to $1.3354, its lowest level since September 18 but
remains strong and will continue to penalize exports.
