ECB welcomes further rate cuts as ‘rebound less likely now’

Amid gloomy outlook, European Central Bank made way for further interest rate cut as well as proposed additional stimulus measures in September to take the continent out of economic crisis. ECB moved from its earlier pledge of not touching the already low interest rates. The European economy struggling with low inflation, manufacturing crisis, Brexit uncertainties and global trade tensions took the call to boost growth in the region.

ECB’s latest move comes as the central banks across the globe switched to more relaxed policy measures. Turkey, Australia and United States’ central bank redefined certain targets for the year and introduced big interest-rate cuts.

On Thursday, ECB President Mario Draghi, after meeting with ECB’s Governing Council, told reporters,“This outlook is getting worse and worse in manufacturing, and it’s getting worse and worse in countries where manufacturing is very important, and because of value chains, this propagates all over the Eurozone.”

He added that ‘rising threat of protectionism and vulnerabilities in emerging markets’ and ‘the possibility of a hard Brexit’ added to the current crisis, especially slump in the manufacturing industry.

Germany is the worst hit in the bloc in the current wave of economic slowdown. It being the largest economy of Europe, in the ripple effect to its manufacturing crisis, the euro zone government bond fell to all-time low on Thursday. It shook investors’ faith in the market and simultaneously built pressure over ECB to adopt more dovish policy.

The German economy is expected to grow the least in 2019 as compared to last six years, the government predicts overall economic growth of 0.5 percent for this year and a rebound to 1.5 percent in 2020.

ECB’s announcement on Thursday to ease policy further, lifted the investors morale a bit as the trading market showed signs of mild recovery on Friday, and the euro EUR=EBS moved up to $1.1136, from a two-month low of $1.1102.

Despite slight upward movement, the markets were remained disappointed over the lack of the details of the measures which would be introduced besides interest rate cuts.

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