ECB’s monetary expansion not to weaken euro

Economy Materials 24 October 2015 12:25 (UTC +04:00)

Baku, Azerbaijan, Oct. 24

By Anvar Mammadov - Trend:

The European Central Bank's decision on the extension of monetary expansion till September 2016 will not greatly weaken the euro rate, Farhad Amirbayov, the financial expert, told Trend Oct. 23.

The expert believes that any inflationary surge is unlikely to occur in the euro zone.

"The matter rests in the fact that when the European Central Bank paid off the obligations of its commercial banks in 2014, it pursued two important goals, namely, improving of the liquidity of the banking system of the euro zone and combating of deflation," he said. "The deflation throughout the euro zone amounted to 0.16 percent in 2014. The inflation worth 0.25 percent has been observed since early 2015."

The expert said that the main purpose of this decision is to maintain and stimulate the economic growth and stability of the banking system of the euro zone.

"In general, the decision is aimed at stimulating the economy of the euro zone, increasing the consumer spending and credit growth," he said. "I think that the quality of loan portfolios of the European banks is rather dubious. Therefore, some problems may occur without the European Central Bank's additional support."

Regarding the fact that the projected increase in interest rates by the US Federal Reserve System (FRS) can also lead to weakening of the euro, the expert said that the increase in interest rates before late 2015 is unlikely.

"I think the rate increase is unlikely, as there has been no significant and substantial improvement of the US economy over the years," said Amirbayov. "If there is no improvement, the rate increase will lead to the increase in cost of service of not only federal but also municipal, corporate and private debts of the US. It is clear that the banks will be indexing interest rates, and as a result, the debts rise on many credit instruments. Therefore, I doubt that the Federal Reserve System will increase interest rates in conditions of sluggish growth in both the US and the world economy."

At the regular meeting of the European Central Bank (ECB) Oct.23, the president of the bank Mario Draghi announced the decision to extend a program to buy back assets in the amount of one trillion euros adopted in January 2015 until September 2016 and the subsequent period.


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