ECB Asks For Patience

The euro was steady to begin the week after falling to a four month low of $1.35503 on Thursday last week following the European Central Bank’s policy meeting.

The common currency traded at $1.3644 as investors took profits from short positions built up in the weeks prior to the meeting.

On Thursday last week, the bank unveiled a series of measures designed to fight the region’s falling inflation and help the eurozone’s recovery get back on track.

The bank met expectations and lowered all of its key interest rates, including the deposit rate, which is now negative. The ECB is the first major central bank to effectively charge banks for holding on to large amounts of cash through the use of a negative deposit rate.

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The Wall Street Journal reported that on Friday, Bundesbank Head Jens Weidmann echoed several other board members’ calls for patience among the markets as the bank’s changes will need time to make an impact on the region’s economy.

In addition to the rate cuts, the bank also elected to implement a stimulus plan which will inject liquidity into the region’s financial markets. 

The package, though aggressive, doesn’t measure up to the stimulus spending seen from the Federal Reserve or the Bank of England. The ECB’s stimulus plan will also take time to employ, as the targeted loans the bank has promised aren’t expected to become available until September.

The ECB left the door open for further stimulus action if need be, but for the time being, the bank’s message seems to be one of patience.

With interest rates at an all time low and a relatively large cash injection on the way, the bank is looking to see how the changes play into the eurozone economy before adding on to its easing package.