FRANKFURT, Sept. 13 (Xinhua) -- The European Central Bank (ECB) announced a host of easing measures, including a rate cut and a massive bond-buying program on Thursday to prop up the slowing economy. It has drawn mixes responses from analysts.
The ECB decided to bring the deposit rate further into the negative territory at minus 0.5 percent, three years and a half after its last rate cut. The bank also restarted net purchases under its asset purchase program (APP) at a monthly pace of 20 billion euros (22.17 billion U.S. dollars) as from Nov. 1.
Quantitative easing (QE) is deemed "open-ended" by many, as the ECB said it expects the program to run "for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates."
Other measures announced include more generous terms for the bank's quarterly targeted longer-term refinancing operations (TLTRO III) and a two-tier system for reserve remuneration to mitigate the effects of the negative rates on banks.
The spate of measures to re-anchor the eurozone's low inflation to its target and shore up the slowing economy was largely in line with market expectations, as the ECB had been sending signals of easing in its previous meetings. However, the details of the package have elicited mixed responses.
Dutch bank ABN Amro said the size of QE was relatively modest, but the program is open-ended for the first time since the ECB launched the APP. The ECB ended the last round of APP in Dec. 2018.
"We doubt whether this package of measures will be sufficient to raise inflation significantly over the next 2-3 years," ABN Amro analysts said in a statement.
Latest data showed the eurozone annual inflation is expected to be 1.0 percent in Aug. 2019, well below the target of "close to, but below 2 percent."
Major economies in the area have seen clear signs of slowdown amid international trade frictions and political uncertainties. The Munich-based research institute Ifo warned on Thursday that the German economy is at the risk of a recession, forecasting an annual gross domestic product (GDP) growth of 0.5 percent in 2019 over the previous year.
Also on Thursday, ECB President Mario Draghi announced the bank's latest forecasts of eurozone annual GDP growth, with projections for 2019 and 2020 revised down to 1.1 percent and 1.2 percent, respectively.
At a press conference, Draghi described the much-anticipated policy package as "powerful" not only in the short term but also in the long run, and said the Governing Council believed it should be adequate to re-anchor inflation to expectations.
But he said the bank is also fully aware of the side-effects of the easing measures and called for more fiscal policy support from the governments, saying there was unanimous consensus in the meeting that "it is high time for fiscal policy to take charge."
Ifo said in a statement that the ECB is under increasing pressure and "seems to have exhausted its options" given how low interest rates already are.
Ifo analysts believed that Draghi, who is going to be replaced by Christine Lagarde in November, had set the initial course for his successor. They expect the ECB not to initiate a turnaround on interest rates until 2021.
The ECB's move on Thursday added to the expectation of a rate cut from the U.S. Federal Reserve following its policy meeting next week.
Also next week, Japan's central bank will announce its monetary policy just hours after the Fed. The bank, like the ECB, has adopted negative interest rates and analysts wonder if a stimulus plan will be implemented.
David Kelly, chief global strategist at JPMorgan Asset Management, said in an opinion piece in the Financial Times that more easing "may make the global economy weaker rather than stronger."
Kelly said that the effects of monetary stimulus have not been assessed properly. Cutting interest rates from already very low levels is likely to suppress, rather than stimulate, demand, he said.
However, for some analysts, the world economy is not as bad as it looks. "The accompanying economic pessimism is clearly overdrawn. The underlying growth momentum is not as bad as it is often portrayed," said Daniel Pfaendler, analyst and founder of Research Ahead, in an article carried by Germany's Manager Magazine.
