ECB Cites Oil As Reason To Wait On Stimulus

The euro made its way higher on Friday morning after the European Central Bank decided not to implement further stimulus at its meeting on Thursday. The common currency traded at $1.2365 at 8:30 GMT as investors anticipating ECB action in December were met with disappointment.

 

Following the bank’s meeting, ECB President Mario Draghi said the governing council was planning to make a decision about whether or not to implement more stimulus in early 2015. The Wall Street Journal reported that Draghi also said that the bank would consider “altering the size, pace and composition” of its measures if it is decided that the bank’s tools are not robust enough to combat falling inflation. Most took Draghi’s rhetoric to indicate that the governing council is considering the use of sovereign bond purchases.

 

The European Central Bank has been hesitant to implement a large-scale quantitative easing program similar to that seen in the US and Japan as some of the region’s finance ministers are worried that such a program would do little without serious structural reforms in member nations. However, Draghi has made it clear that the ECB would be able to roll out a QE program even if the vote is not unanimous, as long as it had the majority.

 

Draghi cited falling oil prices as one of the main reasons the bank wants to wait before deciding on a new stimulus effort. Analysts see persistently low crude prices weighing on the region’s already low inflation rate in the coming months. Drag warned that if the rate of inflation continued to drop, the bank may be forced to raise innterest rates and tighten policy.

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