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Sky News: European Central Bank cuts interest rates for first time since 2016

Article published: Sep 12, 2019

IB Economics syllabus: Macroeconomics (expansionary monetary policy)

The European Central Bank (ECB) cut its interest rates to an all-time-low of -0.5% and announced a bond buying program (basicall pouring money into the Eurozone) at a rate of €20 billion per month. Economic growth is slowing down in many European economies and ahead of Brexit this monetary stimulus (expansionary monetary policy) is expected to revive Eurozone economies  and prevent them from following the path of the UK into recession.

On the other hand – and this might come handy for your evaluation – there might be some downsides of the fresh quantitative easing (QE, the bond buying program) as stated in this Financial Times article:

““Negative interest rates have led to distortions on the asset markets,” [Reinhold von Eben-Worlée] said. “The real estate bubble and eroding pensions are direct consequences of an excessive monetary policy.” Andrew Kenningham, chief Europe economist at Capital Economics, said: “It remains doubtful that this will do much to reboot the eurozone economy let alone achieve the near-2 per cent inflation target.””

Source of image: Sky News

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