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ECB to Increase Scope of Stimulus Program

ECB to Increase Scope of Stimulus ProgramECB to Increase Scope of Stimulus Program

The European Central Bank has held its first meeting since Chinese markets tumbled following sharply reduced growth predictions. These have had a run-on effect on the eurozone, with both growth and inflation falling.

The European Central Bank is ready to increase the scope of its stimulus program in the face of Chinese-led market jitters, but Greece will remain outside the program for now, the bank’s head said Thursday, DW reported.

European markets rallied but the euro fell 1% to $1.11 after bank President Mario Draghi announced lower growth and forecasts and said more stimulus could be on the cards if inflation failed to pick up in the eurozone.

Germany’s DAX added 3.1%, France’s CAC-40 rose 2.8% and Britain’s FTSE 100 rose 2%. In New York, too, the Dow gained more than 1% on the news.

Following a board meeting in Frankfurt, Draghi said the bank would leave rates unchanged for now. But he warned a further slowdown was possible, which he blamed on a weakness in emerging markets.

If that happened, he said, the bank would step in with a longer and more robust bond-buying program than its current €1.1-trillion ($1.2 billion) quantitative-easing program, which spends €60 billion in newly printed money on government bonds every month and is currently scheduled to run until next September.

“Our asset purchase program continues to proceed smoothly,” Draghi said, adding that no one on the bank’s governing council had argued for it to be increased at present. But the “size, composition and duration” of the QE program could be changed, he said.

 Bringing Greece in

Greece has so far not been admitted to the ECB’s QE program due to its low credit rating. But in the wake of its sweeping bailout agreement with creditors, it could be included under a waiver if it shows a commitment to reforms and the bailout program undergoes a review, Draghi said.

He said real GDP in the single-currency area rose by 0.3% in the second quarter of 2015, lower than forecast in June. The bank now expects growth of 1.4% this year from 1.5%, while next year’s forecast has been reduced to 1.7% from 1.9%.

Inflation has also fallen short of projections, and the bank now expects a barely positive rate of 0.1% for this year, down from 0.3% previously, and 1.1% for 2016, down from 1.5%. Deflation fears had prompted the ECB to announce its QE program in January.

Financialtribune.com