The printing press: why the new policy of the ECB provoked the weakening of the Euro

The printing press: why the new policy of the ECB provoked the weakening evrokeramika link
On 13 September 2019, 17:07

Vladimir Agoev
The Euro reached the lowest level over the last eighteen months and is trading close to 71 rubles. The peak of foreign exchange experts explain the new policy of the European Central Bank. To accelerate the growth of Eurozone GDP, the regulator will become more active to print and infuse money into the economy of the region. Such action needs to accelerate inflation and increase investment activity. At the same time, the ECB’s decision will provoke a weakening of the single European currency. How can change the rate of the Euro to the end of the year at RT.

  • Reuters
  • © Dado Ruvic

On Friday, September 13, the Russian currency strengthened in the course of trading on the Moscow exchange. The dollar fell by 0.9% to 64.1 per ruble, and the Euro — by 0.5% to 71.2 ruble.

The official exchange rates of the Central Bank on September 14 was 64,47 rubles per dollar and 71,53 of ruble per Euro.

The appreciation of the national currency started the day before. So, in the course of trading on September 12 euros at the time fell below $ 71 ruble for the first time since early August. Later rate recovered slightly but still remains near a record low for the last month and a half.

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Such dynamics experts associated with the meeting, the European Central Bank (ECB). On Thursday the regulator has lowered its forecast for GDP growth in the Eurozone in 2019 — from 1.2% to 1.1%, and in 2020-m — from 1.4% to 1.2%. To support the region’s economy, ECB President Mario Draghi announced a quantitative easing program.

The ECB intends to include the printing press, and issued money to buy government bonds of Eurozone countries. The actions of the Central Bank increase the money supply in the region, accelerate inflation and increase the growth rate of GDP. At the same time quantitative easing has traditionally provokes the weakening of the Euro in the long term.

Earlier, the ECB pursued a policy of quantitative easing in the Eurozone from 2015 to 2018. Then the regulator has acquired securities worth €2.6 trillion. The new program will start from November 1, 2019 and is not yet approved end date. As expected, the ECB will purchase bonds at €20 billion per month.

«The ECB decision is due to inflation in the Eurozone, which is its lowest level since the end of 2016 — 1% and the growth rate of the economy reached the lowest values in 2015. Therefore, given the actions of the regulator, the Euro will continue to weaken the ruble and the dollar on the world market», — said in an interview with RT, the portfolio Manager QBF Denis Ikonnikov.

According to experts, low inflation indicates a low level of consumer demand in the region. The persistence of this situation over a long period of time leads to stagnation in the economy of the region.

In other words, the European Central Bank attempts to accelerate the economy through additional monetary injections. However, the planned programme, the ECB risks to degenerate into inflating financial bubble on the market of the Eurozone. With high probability it will increase the speculative demand for European assets, securities will go up, but the economy will continue stagnation. In an interview with RT told the General Director IK «Oriole Capital» Andrey Khokhrin.

«In theory, the ECB’s actions should strengthen investment and consumer confidence and increase the amount of free money in the financial system. It is necessary for lending business. However, until now, and for nearly ten years, such steps have led to undesirable long-term consequences. Inflated financial markets, the growing leverage (the ratio of borrowed funds to equity. — RT), but significant economic impact did not occur», — said Khokhrin.

According to experts, the high debt load of the Eurozone countries and the possibility of inflating the financial bubble to disturb the global investors. Such sentiments of market players also have a negative impact on European currency.

  • Reuters
  • © Regis Duvignau

In addition, in its forecasts of market participants hoped for more decisive action from the ECB. It was expected that the regulator will start a policy of quantitative easing in September and will start purchasing bonds for €30-50 billion About this in an interview with RT said an analyst with a management of operations on the Russian stock market IR «freedom Finance» Alexander Osin.

According to him, as a result of lower volumes and delay the start of the program until November, the Eurozone economy will feel the effect only in 2021. The impact on inflation will be below the planned expectations.

As explained in an interview with RT Denis Ikonnikov, an additional stimulus for the Eurozone economy could be a reduction in the tax burden in the region. According to analysts, the ECB could make such a measure and thus accelerate inflation. At the same time, the European currency will still continue to weaken.

According to the forecast of Denis Ikonnikov, to the end of the year, the Euro could fall to 70 rubles. Alexander Osin expects values in the range from 67,1 to 72.35 rubles.

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