LONDON (Reuters Breakingviews) - Mario Draghi is channelling a new cartoon character. The outgoing European Central Bank boss, dubbed Super Mario for all he did to fight the euro zone crisis and revive growth, on Thursday unveiled fresh stimulus measures, including a rate cut and new asset purchases. The open-ended nature of the buying smacks of Toy Story’s Buzz Lightyear. Markets seem to think it will last to infinity and beyond.
The ECB cut its deposit rate to minus 0.5% from minus 0.4%. It also said it would resume purchasing 20 billion euros-worth of bonds a month from Nov. 1, continuing for as long as needed and until shortly before it starts putting up rates. Given such monetary tightening isn’t expected for years, investors’ reaction was to push down the euro and euro zone government bond yields. The icing on the cake was a set of measures to mitigate the impact of sub-zero rates on banks so that they would continue to lend to consumers and companies.
The euro zone economy could certainly do with some help. Growth halved to 0.2% in the second quarter as Germany’s economy shrank. There’s no light at the end of the tunnel: The Ifo institute on Thursday cut its 2019 growth forecast for Europe’s biggest economy, which it said would tip into recession in the third quarter. Euro zone price pressures are also worryingly weak. Inflation is running at about half the central bank’s target of just under 2% and the ECB’s latest forecasts show it will be weaker than previously anticipated this year and next. However, it’s unclear that Draghi’s parting gift will, on its own succeed, in fixing these problems.
The Italian said on Thursday that it was high time for fiscal policy to take charge. That’s a sentiment probably shared by Christine Lagarde, the Frenchwoman who succeeds him on Nov. 1 and who has said in the past that monetary policy cannot be the only game in town. Draghi has made her life easier in some ways by doing so much before stepping down. But he also leaves her with fewer options to shock and awe investors in the future.
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