ECB ready to help eurozone further if Brexit hurts economy

ECB President Mario Draghi had indicated last month that additional stimulus could be “in the cards”, pointed out Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management, in her weekly market commentary.

“I’m pretty confident that the strong supervision and robust regulation and better communication by the supervisory agencies… will still improve the situation … and our perception in the world’s eyes”, he told reporters in Frankfurt.

Along with the Brexit, Draghi also noted that headwinds to the European economic recovery include geopolitical uncertainty, subdued growth in emerging markets and the sluggish pace of structural reform. And it has imposed a negative rate on deposits left with it by commercial banks of 0.4%, a penalty meant to push them to lend the money.

“If warranted to achieve its objective, the Governing Council will act by using all instruments available within its mandate”, the European Central Bank president told reporters in Frankfurt on Thursday.

The ECB, which regards an inflation rate of close to but just under 2.0 percent as conducive to healthy economic growth, has rolled out a series of measures in recent years to drive up the single currency bloc’s chronically low inflation rate. However, Draghi warned that these growth forecasts should be taken with a “grain of caution”.

It repeated that its €80 billion (S$119.7 billion) per month asset- buying programme – which Mr Draghi deemed “quite successful”- would run until March next year or beyond if necessary, until it sees an upward adjustment of inflation towards its target.

But its president, Mario Draghi, stressed Thursday that the bank would need more time to monitor the situation and refrained from any clearer indications of what would force its hand.

Aside from the technical aspects, any perceived delays to monetary easing could depress future inflation, which traders say is making investors look at “curve flattening” trades where they buy a higher share of long-dated bonds.

At a news conference, Mr. Draghi said it was too early to determine the economic fallout of the United Kingdom referendum, and stressed that financial markets had shown “encouraging resilience”. The Stoxx Europe 600 banks index jumped 0.6% after trading with losses earlier in the day.

Many economists expect the European Central Bank to extend its bond purchase program, known as quantitative easing, at its September 8 policy meeting.

How much support will the ECB’s asset purchases offer?