ECB is preparing a stimulus package

Starting from August 15, the position of the euro has slipped noticeably against major competitors. The single currency accelerated the decline against almost all key competitors. Pressure on the euro came from the risks of Brexit and the slowdown in the global economy. The speech of ECB member Olli Rehn was a factor in the accelerated decline in the euro. He noted the need for incentive measures for the eurozone economy in the current global situation.

Olli Rehn is a valued ECB member and the former Minister of Finland. Ren’s candidacy was considered the main one in the election race for the post of the ECB Governor at the beginning of the year. But in the end, he lost the victory to the Director of the International Monetary Fund, Christine Lagarde.

Ren in his speech noted the urgent need for stimulus measures for the eurozone economy. By measures, he meant the resumption of the quantitative easing program, which was curtailed at the end of last year, and lowering the interest rate on deposits. Now the rate is at the level of -0.4%.

Expectations of the ECB stimulating monetary policy

The main stimulus for the economy of the European Central Bank will be a reduction in deposit rates by 0.1% to -0.5%. There are also more radical forecasts indicating a decrease in rates by 0.2%, to the level of -0.6%.

The most likely incentive measure may be the resumption of the incentive program (QE) in the amount of about 50 billion euros per month. Also, this amount can vary from 20-50.

Also, the possibility of introducing new loans for banks (TLTRO) is not ruled out. The ECB has resorted to such an action,  interest rates cut and increasing the maturity.

These actions are very likely in the face of existing risks. Wren points out the need for several incentive measures for greater effect. Given the existing risks, a slowdown in the global and Chinese economies, the growing tension in the US – China trade war, the likelihood of a tough Brexit and the unstable situation in Italy indicate the need to stimulate the eurozone economy.

In one way or another, this is already taken into account in the value of the euro against its main competitors. A new bell before the ECB September meeting may be the ECB protocol, which will be released on August 22 (Thursday), in which investors will be looking for the hints to stimulate the eurozone economy.

Anton Hanzenko