Yael Selfin, head of macroeconomics at KPMG in the UK, comments on monetary policy announcements from the European Central Bank (ECB).
Commenting on today’s monetary policy announcements from the European Central Bank (ECB), Yael Selfin, head of macroeconomics at KPMG in the UK, said:
“Following today’s monetary policy meeting the ECB gave no information on its quantitative easing plans once the current phase of bond purchases ends in March next year. We’ll now have to wait until December for more information. While uncertainty and market volatility triggered by the Brexit vote are likely to make the ECB more cautious in pursuing an eventual tapering plan, there are other issues that are likely to be of more immediate concern such as the fragile state of some other EU economies independent from developments in the UK (for example Portugal, Greece, Italy).
“The ECB has probably gone as far as it can in using negative interest rates, and the tension with some members mean that it may want to rein in any further stimulus through increased volume of quantitative easing. Mario Draghi’s earlier call for a more active fiscal intervention and an accelerated reforms agenda chimes well with the realisation that Central Banks have, in many countries, reached the limitation of their magic.
“Brexit could be the spark which propels EU governments to galvanise the economy through reforms and targeted fiscal stimulus. The risk though is that it could serve as an inspiration for separatists elsewhere in the EU to further weaken the Union. The number of key elections across the EU in the coming year is going to be crucial in assessing this risk.
“The UK economy is significant for the EU, and certain sectors such as finance provide crucial services for many companies across Europe. However a weaker UK economy could reduce demand for these services and more difficult trading relations will make it harder for EU businesses to sell their exports, as well as import goods and services from the UK. So even though the impact of Brexit will be most severely felt in the UK, there will undoubtedly be some impact felt by rest of the EU.”
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