European Central Bank Lowers Interest Rates

The European Central Bank implemented some of its latest tools to boost the economy and prevent chronic low inflation on Thursday. The institution lowered interest rates and expanded its asset purchase program. According to Reuters, the European Central Bank revised its inflation rate forecast, but at the same time, this recent decision means that interest rates in Europe will not fall below this level. As a result of this decision, the euro's exchange rate against the dollar quickly dropped by one percent. The European Central Bank further reduced the interest rate on deposit accounts, which is currently negative, and contrary to expectations, increased its asset purchases from 60 billion euros to 80 billion euros. Consequently, the interest rate on savings accounts is now set at 0.4 percent, the rate for refinancing and large loans dropped from 0.05 to zero, and the interest rate for loans to financial institutions and banks from the European Central Bank decreased from 0.3 to 0.25. Mario Draghi, the president of the European Central Bank, said at a press conference: 'Interest rates will remain very low for a long time and will continue even after the asset purchase period by the European Central Bank.' The European Central Bank's asset purchase program is set to end in March next year. Mr. Draghi added: 'Given the current conditions and considering other incentives from the European Central Bank to strengthen economic growth and inflation, we do not expect that lowering interest rates will be necessary in the future.' The president of the European Central Bank also emphasized that the bank's cheap loans are granted to financial institutions and banks that lend to the real economy of Europe, not to those engaged in other activities. Some experts and financial institution managers welcomed this decision by the European Central Bank, but others believe that advancing such an easy policy regarding asset purchases will lead to a bubble-like increase in asset prices and simultaneously reduce the motivation of European governments to push forward economic reforms. Mario Draghi responded to some of these criticisms, stating that if we adhere to a 'no reaction' policy to current conditions, the economic growth rate in Europe will decline to a catastrophic level. However, he also acknowledged that negative interest rates have their specific limitations and emphasized that in the future, the European Central Bank's actions will focus on other methods that are not so conventional. The European Central Bank's policy of allocating 700 billion euros for asset purchases over the past year has not yielded significant results as it coincided with a decline in global commodity prices, which many experts see as a primary factor in reducing pressure on the European economy. This decision by the European Central Bank was made a month after the G20 member countries concluded that to prevent a decline in global economic growth, in addition to lowering interest rates, more cash needs to be injected into the economy. A meeting of the central banks of the United States, Japan, the United Kingdom, and Switzerland is scheduled for next month, and each of these countries may make new decisions. Although Europe's economic growth, relying on domestic consumption, has managed to resist existing problems overall, from the not-so-positive remarks of the financial and industrial sectors in Europe, it can be seen that Europe is under pressure due to reduced economic activities globally, especially the slowdown in China's economic growth.