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ECB stands ready to take further action to boost inflation

European Central Bank's (ECB) policymakers suggested previously that China poses significant risks to Europe due its prominence in global trade and two policymakers Mr. Constancio, Vice President of ECB and peter Paret, chief economist suggested that ECB stands ready to act if needed.

Currently inflation in Europe stands at 0.2%, well below central bank's target of close to but below 2%.

  • Recent commodity rout including energy and slowdown in China has increased the possibility of further stimulus from ECB. As of now, ECB is purchasing bonds in tune of €60 billion per month. Current program is flexible enough to accommodate further stimulus. Banks can extend the maturity or the purchase size or even extend the program. Central bank might even choose to frontload the purchase in immediate term.

European central bank's 5 year-5 year forward inflation swap dropped to 1.4% over Monday's move and currently hovering at 1.6%. One year inflation swap has fallen below zero for the first time since February.

Next ECB monetary policy is scheduled on 3rd September, 2015.

Euro is currently trading at 1.142 against Dollar, down 1.1% for the day.

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