Mario Draghi has predicted a “prolonged period of low inflation” in the euro area and will give “all the necessary liquidity to the bank until July 2015”
The European Central Bank ( ECB ) has fallen by surprise today the interest rate in the euro zone from 0.50% to 0.25% , the lowest level in its history. There were two circumstances that justified that the ECB has placed interest rates at a new historical low: the strength of the euro and low inflation in the eurozone recorded in October.
However, in the last week the experts did not rule out a reduction of the rates as it did in meetings of previous months, the analysts thought that the president of the monetary institution, Mario Draghi , would postpone this decision to later months.
Draghi has forecast a “prolonged period of low inflation” in the euro area and guaranteed that he will observe the conditions of the money market.
“The market has taken it fabulously, because it shows that the ECB will do everything it takes to make the recovery in Europe real,” added Renta 4 analyst Óscar Moreno.
Draghi announced today that the entity will give banks all the liquidity they need until July 2015 at a fixed interest rate on their main refinancing operation, the weekly auction.
“It will be another oxygen ball,” he illustrated. The head of analysis of Selfbank, Victoria Torres, has also shown its “absolute surprise”, since, although they predicted that it would produce a decline, it was expected for the December meeting of the ECB.
Torres has indicated that the ECB has decided to lower rates because the economy of the Eurozone “continues without going back”. However, experts have warned that Spain’s recovery should not be relied upon to lower rates .
“It is not the panacea for unemployment to come down and credit to flow again,” Pingarrón explained.
“This decrease is not going to be immediately transferred to the real economy and it will not be enough to reopen the debt market, but it will have an important psychological effect,” said the Self Bank analyst.
The market had asked in the last two weeks the president of the ECB, Draghi to lower the price of the money to reactivate the internal demand and the credit because the levels of inflation in the euro area were touching the 0% and could cause that the zone euro will enter deflation .
The lowering of interest rates will flood the liquidity market, which will allow greater capital flows at a price close to 0%.
The stock market has received strong rises, at 13h30 (Spanish time) when it has been known the ECB decision to lower interest rates by a quarter of a point – the historic decision decided by the European Central Bank. The Spanish selective (Ibex-35) pointed to strong increases of 1.50% at 1:45.
ECB’s decision to lower interest rates
The decision of the European Central Bank (ECB) to lower the interest rates of the euro by a quarter of a percentage point, up to the historical minimum of 0.25%, has had an immediate impact on the currency market, where the euro loses strength against the ‘greenback’ and was at minimum since September.
The price of the European common currency fell to $ 1.3364, after having started the session at $ 1.3512, which is the lowest change since last September 18.
The consensus of analysts had anticipated that the strength of the euro and low inflation in the euro area in October could justify a cut in the ruling rate at the November meeting.
The European institution has reported in a statement that it also reduced the marginal credit facility, by which it lends money to banks for a day, by 25 basis points to 0.75%. However, it maintained the deposit facility, for which pays the money, at 0%.
The reduction in the price of money will benefit all citizens who have products linked to mortgage loans, which will lower the marginal rate, but will hurt deposit clients since banks will tend to reduce the remuneration of this type of product. saving.
In fact, in the last six months, Spanish banks have reduced the remuneration of deposits from 3% to 1.25%.
In the opinion of the experts consulted by Europa Press , there were two circumstances that could justify that the ECB place interest rates at a new historical low: the strength of the euro and low inflation in the eurozone recorded in October.
The annual inflation rate for the euro zone stood at 0.7% in October, four tenths below the level reached the previous month, which is the lowest reading of the price indicator since November 2009, when the figure inflation of the eurozone was 0.5%.
Other experts, such as UBS, predict that the reduction in interest rates will occur as a “last intention” to avoid a sharp rise in the coming months of the Euribor index, to which most of the mortgages in the euro zone are linked. The banks will return the aid granted at low interest rates (LTRO) and capital injections offered by the ECB to 3 years and the excess liquidity in the interbank system will disappear, which allows the entities to finance each other.
The economy of the euro zone experienced an expansion of 0.3% in the second quarter of the year compared to the previous three months, which means ending six consecutive quarters of GDP contraction, as reflected in the latest estimate data published by Eurostat.
The European Commission has published its autumn economic forecasts this week, from which it appears that the recovery of the eurozone economy will continue in the coming months, albeit at a slow pace, due to adjustments in the Member States with problems and to the worsening of the external environment.
Brussels estimates that the eurozone will contract 0.4% this year due to the drag effect of the first quarters, and will grow by only 1.1% in 2014 – instead of the 1.2% it predicted in the spring – and a 1, 7% in 2015.
The Ibex approaches 10,000 points after the rebate
The Ibex 35 has been driven by 1.7% and has touched the entire 10,000 after the European Central Bank (ECB) has decided to lower the interest rates of the euro and leave them at 0.25%.
ArcelorMittal led the increases close to 2:00 pm, with an advance of 7.37%, followed by Popular (+ 3.80%), BBVA (+ 3.41%), Indra (+ 3.51%) and Santander ( + 3.46%).
On the other hand, BME left 2.81%, Inditex -0.17%, DIA 0.15% and Jazztel 0.12%. After this rate reduction, the main European markets – Paris, Frankfurt and London – have started to rebound and registered increases close to 1%.
In the currency market, the euro relaxed to 1.3370 ‘greenbacks’, while in the debt market, the risk premium stood at 235.3 basis points, with the yield of the 10-year bond at 4.064%.
The ECB Governing Council has decided on Thursday to lower the interest rates of the euro to a new historical low of 0.25%, an option with which markets have speculated in recent weeks, but that was not the central scenario.