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European Central Bank survey sees lower euro zone growth ahead on Brexit
Many investors had been hoping for a firmer commitment for fresh stimulus from Mr. Draghi, after he warned European Union leaders last month that the Brexit vote could shave up to 0.5 percentage point off eurozone growth over three years.
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Instead, Draghi signaled Thursday only that the European Central Bank might add more stimulus next month.
Such a measure could prove highly unpopular, with citizens in many countries still angry at having to “bail out” banks following the global financial crisis of 2007-08.
“I would stress readiness, willingness, ability, to do so”.
Draghi spoke after the ECB Governing Council kept its main interest rate at zero and continued quantitative easing – money printing to buy bonds – at around 80 billion euros a month.
The ECB said it expects to keep key ECB interest rates at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.
But he also noted that growth and inflation were both moving along the path projected in June.
The risks to the euro zone economy remain tilted to the downside.
In his subsequent press conference, ECB president Mario Draghi said the central bank will monitor economic and financial market developments very closely due to uncertainties raised by the so-called Brexit.
The ECB is running out of qualified assets to buy, particularly German government debt, as yields have fallen below its deposit rate, a self-imposed limit for its buys.
The ECB (European Central Bank) chose to keep the key rates unchanged in the monetary policy review on July 21, 2016. “Brexit” is expected to create a huge negative shock for the United Kingdom economy, and simultaneously slow the euro area recovery.
Draghi said today: “The longer we have this in place, the less functioning will be the banking sector – and less effective the banks will be at transmitting our monetary policy”.
Earlier this week, the International Monetary Fund downgraded the euro area’s growth forecast for 2017 in expectation that the bloc’s economy would take a big hit from the UK’s decision to leave.
One of imminent issues to handle is the risk that the European Central Bank is running out of qualified assets to buy, particularly German government debt, as yields have fallen below its deposit rate, a self-imposed limit for its buys.
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The bank is still trying to boost growth in the eurozone and kickstart low inflation.