ECB continues Quantitative Easing

In the recent monetary policy released by European Central Bank (ECB) the ECB has kept the parameters of Monetary Easing unchanged which clearly shows the unchanged stance of ECB related to the Quantitative Easing. According to the ECB President Mario Draghi at a news conference in Malta, the asset purchase plans are processing smoothly and continue to have a favorable impact. As per this statement it is clear that seeing the benefits of quantitative easing the ECB is finding it difficult to withdraw it fearing that the growth momentum would be affected and economy might again see a downturn.

ECB buys 60 billion euros worth of assets mainly government bonds per month hoping to boost inflation in the country which is in negative zone and thus affecting growth in the country. As per the ECB President Mario Draghi the fall in the commodity prices and the slower growth and other concerns in the emerging markets the inflation expectations and pressures remains negative the quantitative easing is the only hope.

Its not only the ECB which is struggling with these circumstances but also Japan and to a certain extent US which has finally shown some signs of revival and growth. But due to downfall in the Chinese Economy US which was planning to reverse the process of Quantitative easing and increase the interest rates from the long term zero rates has postponed its decision. This clearly shows that in spite of being a great economy the interdependence of the economies cannot be ruled out in this highly integrated world.

In this scenario Raghuram Rajan the RBI governor, India has timely warned the world economies to reverse their policies of Quantitative easing as it would lead to Beggar Thy Neighbor scenario where the countries through quantitative easing would not be improving growth via productive improvement but by transferring the slowdown to other economies. Due to this the other economies will again be motivated to transfer this slowdown to other economies and at the end of the cycle no economy would benefit and further the economies will loose the much important tool of quantitative easing. So economies instead of boosting growth through quantitative easing should try to improve their growth through productivity enhancement and improvement in investments in productive assets.

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