Will The ECB Take Action Against Deflation

redmoneyupdate: The Eurozone has been combating one serious economic hurdle after another over the last few years, but in recent months things have slowly become a bit calmer and less volatile.  That being said, the newest concern to threaten the health and wealth of the Euro economy is low inflation rates and an strong Euro currency.  Mario Draghi, the ECB president describes the strength of the Euro in light of the low inflation as a matter of “serious concern”.  He also declared his willingness to consider extraordinary measures such as QE to try and bring down interest rates and increase inflation for the Eurozone.  The plan is to address the issue at the next policy meeting in June.

Will The ECB Launch A Full-Fledged QE Program To Combat Deflation?

It’s actually rather unlikely the ECB will engage in a full-fledged QE program like we have seen here in the U.S., but it seems rather likely that that in their words: the governing council has stated its “unanimous commitment to using unconventional instruments within its mandate to cope effectively with risks of a too prolonged period of low inflation.”   The impetus for the new methods comes from a slowly improving Euro economy that is suffering from inflation that is well below target.  Inflation is needed to put pressure on the economy and encourage its growth.

QE Will Probably Look Different In Europe

Because of the concerns from many of the countries that the ECB will be financing government debt, it is unlikely that QE will involve the purchasing of government debt.  Rather, some have speculated that the ECB may choose to buy private corporate bonds to circumvent that issue.  The problem with private bonds is that there may not be enough companies able to access this market in some of the smaller Euro countries.  It is more likely that Draghi will first try to lower the Euro through less invasive measures such as cutting interest rates and credit easing.  Large scale asset purchases are on his radar to try if things don’t show improvement, but he will probably first see the outcome of the other options.

The markets will be holding their breath to see what the ECB’s decision is at this next policy meeting.  Stay tuned for more information.  To learn more about how monetary policy in the Eurozone will impact your assets and to make sure your portfolio is properly positioned, contact a Redhawk Wealth Advisor near you today.