To: TobagoJack who wrote (105384 ) 4/4/2014 12:01:49 AM From: elmatador Read Replies (1) | Respond to of 219086 ECB says prepared to embrace QE By Claire Jones in Frankfurt The European Central Bank has given the strongest signal yet that it is prepared to embrace quantitative easing to prevent the eurozone from sliding into deflation or even a prolonged period of low inflation. The ECB ignored calls from Christine Lagarde , managing director of the International Monetary Fund, to immediately deploy exceptional monetary policy measures, such as bond buying, and kept interest rates at 0.25 per cent for the fifth month in a row. But Mario Draghi, ECB president, sought to address concerns the central bank is complacent about ultra-low inflation by saying the 24-member governing council was united in its support for more radical action should the outlook disappoint . “The governing council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation,” Mr Draghi said. His comments caused the euro to fall by half a percentage point against the dollar to trade at 1.3702 by 4:30pm in London – its lowest level since late February. The yields of Italian, Spanish and Portuguese bonds, which move inversely to prices, fell to multiyear lows. Mr Draghi later confirmed that these unconventional measures included government bond-buying. “All instruments that fall within the mandate, including QE are intended to be part of this statement,” he said, adding that policy makers had discussed quantitative easing at the meeting. Mr Draghi stressed, however, that the council was yet to exhaust its conventional armoury, suggesting that any launch of quantitative easing would only come after more rate cuts. While the other major central banks, including the US Federal Reserve and the Bank of England embraced QE early in the financial crisis the ECB has been reluctant to follow suit. The ECB president’s statement of intent lowers the bar for quantitative easing by signalling that the central bank would buy bonds not just if prices began to fall, but also if further signs emerged that inflation would remain very low for an extended period of time. Eurozone inflation is now at its lowest level for four years , at 0.5 per cent – around a quarter of the central bank’s target of just below 2 per cent. Its latest forecasts show that inflation will rise towards the target, hitting 1.7 per cent in 2016. Though Mr Draghi pinned much of the blame for the latest fall on last year’s early Easter – when companies in the currency bloc’s dominant services sector tend to raise their prices – and subdued energy costs, he acknowledged that policy makers had been surprised by the extent of the fall in inflation last month. He also admitted that policy makers had been repeatedly caught out by the weakness of price pressures, forcing them to lower their forecasts for inflation again and again. After months of inaction, however, others viewed the ECB’s latest stab at convincing the central bank is willing and able to deploy more radical tools with scepticism. The council did not act in response to weak inflation and, despite all the positive tone, it is not clear that the council will act in the future,” said Richard Barwell, economist at Royal Bank of Scotland. “For now, the market is likely to digest the talk of unanimous support for unconventional measures with relish and continue romancing the possibility of ECB QE. In time, we suspect the focus will shift back to the fact that the council did not cut rates.”Additional reporting by Ferdinando Giugliano, Andrew Bolger and Delphine Strauss in London