The European Central Bank (ECB) signaled readiness to provide more monetary stimulus to counter downside risks to growth and inflation. Mario Draghi, the ECB president, said policy makers adjusted the parameters of their bond-buying program to allow for more purchases and lowered economic forecasts. The ECB also left interest rate unchanged at record lows.
The European Central Bank (ECB) has kept its liquidity lifeline to Greece's banks on hold at just under €91bn. At a scheduled meeting of the ECB's policy making governing council, the Bank of Greece made no request for additional Emergency Liquidity Assistance, suggesting financial conditions in the country have improved since talks began on a third bailout package.
In China, the Shanghai Composite index fell by 1.7 per cent on Tuesday after another tumultuous day of trading. The relative stabilization of the Chinese market following the 8.5 percent decline on Monday helped other regional markets settle down - the Japanese Nikkei and Australian bench mark indexes declined by only 0.1 percent, and Hong Kong’s Hang Seng index was up 0.9 percent.
While negative rates in Europe may help boost lending and exports, they could also have some adverse consequences for financial stability. They may erode bank profitability and may make it harder for pension and life insurance companies to meet their long-term liabilities. Investors may be encouraged to take excessive risk. Finally, if negative rates were to prevail for long, they may lead to operational innovations whose costs may offset the benefits of negative rates.
There has been a sell-off in global commodities today as Brent is down over 150 basis points to $55.42/bbl. Metals and agricultural products generally followed this trend and were also softer today.
The European Central Bank (ECB) raised the limit on Emergency Liquidity Assistance (ELA) to Greek banks by €900 million to almost €91 billion, easing the pressure on Greek lenders that re-opened on Monday for the first time in three weeks. The ECB’s policy-setting Governing Council had previously set ELA at €89.5 billion. The move came two days after the Greek government made a €4.2 billion payment to the ECB.
Reflecting negative policy rates in several central banks in Europe, nominal yields on some bonds of highly-rated European governments have also dropped below zero. Explanations for the phenomenon of negative yields include very low inflation, further “flight to safety” toward fixed income assets in Europe’s core, and—perhaps the main proximate cause—the increased scarcity of highly-rated sovereign bonds eligible for the European Central Bank’s asset purchase program.
Gold prices fell for a six consecutive day on Monday as the U.S. dollar hit a 3-month high against a basket of major currencies amid prospect for higher U.S. interest rates. The price of the bullion dropped as much as 5.5 percent to a 5-year low of $1,072.35 an ounce in early trading, but is currently trading at $1,105 an ounce, down 2.5 percent.