Banking, finance, and taxes

Draghi and ECB to the Rescue, With More Hints of Easing Ahead

Jon C. Ogg

Published: January 21, 2016 9:45 am

Last Updated: January 13, 2020 2:47 pm

The stock market has been hostage to many international pressures in 2016, seeing some $2.2 trillion or so wiped out in just over the first two weeks of this year. So is it a surprise that a reversal on Thursday is coming from overseas? European Central Bank (ECB) president Mario Draghi has come to the rescue. Draghi is signaling that the ECB is ready to do more monetary easing measures to keep Europe’s economy going.

At Thursday’s meeting, the Governing Council of the European Central Bank decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged. This left the main refinancing operations rate at 0.05%, the interest rates on the marginal lending facility at 0.30% and the deposit facility in negative territory at -0.30%.

The real meat of the ECB report was not in keeping rates the same as in December. It was that the promise of reconsidering monetary policy (hint: more quantitative easing measures) that gave the markets a boost.

Draghi believes that the best answer to negative market developments is to make sure that the banking sector remains resilient.

Draghi also warned that the current market tank is different because he does not see signs of potential financial instability that would be similar to pre-crisis times. Draghi also said there are no limits to how far it would go to keep financial stability, and that the ECB is not and will not surrender to global factors.

What is driving the hope here was Draghi’s admission that circumstances have changed since December at its last meeting.

Then there is the signal made that the ECB has plenty of instruments to act and that the ECB has the power, willingness and determination to act now that the risks to growth are back to the downside. Draghi also said that it is pretty clear that the monetary policy measures taken since the middle of 2014 are helping, but he expects that interest rates will remain at present levels or even lower levels for an extended period.