The Merkle

ECB Feels Brexit Woes Are “Contained” For Now

A lot of people are keeping a close eye on what the European Central Bank is doing these days. With the Brexit occurring, there seemed to be a need for an intervention to relieve the stressed markets. But for now, that will not be needed, and interest rates and policy plans will remain unchanged. Moreover, the institution deemed the Brexit shockwaves to be “contained”.

No Policy And Interest Rate Changes By ECB

Mario Draghi has issued an official statement today, saying it was still too early to comprehend the full impact of the Brexit. This seems to be in line with what other financial experts have been saying, as the exact ramifications will not be felt until several months from now. If things look dire in the future, the ECB will take “more actions” to lift inflation.

There will be no impact on the European economy for the time being, which was not to be expected either. The Brexit is causing a lot of stress on the UK market, as Europe should not see any significant changes over the next few months. Then again, stock markets and investors can respond to changes in funny ways, and the Eurozone is not out of the woods just yet.

Although the ECB decided not to change the rates, for the time being, they remain at a record low. At the same time, the ECB will continue to buy assets to boost inflation and pump money into the eurozone’s economy. The way things stand right now, roughly US$88 billion is pumped into foreign assets every month.

Despite the best efforts by Mario Draghi, there is a glass ceiling regarding much how the ECB can do. Monetary easing has been a go-to strategy for several decades now, but the results are becoming less apparent every single time. If this trend continues, there is nothing the ECB can do whenever a real recession hits. The way things look right now that is not unlikely to happen.

Now that the Brexit is “contained”, the ECB can turn its attention to the financial concerns in Italy. For the time being, the Italian government is talking with the European Union to help aid troubled lenders. Draghi remains a firm believer of how action needs to be taken to address the problem of bad loans.

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