Brexit-and-see: ECB dangles possibility of further action

Jake Cordell
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Mario Draghi may be planning to sprinkle more cheap cash across the Eurozone later this year
Mario Draghi may be planning to sprinkle more cheap cash across the Eurozone later this year (Source: Getty)

The European Central Bank (ECB) has paved the way to unleash further economic stimulus following the UK's shock vote to leave the European Union.

The central bank said it was too early to assess the full extent of how the Brexit vote will hit the Eurozone, though it hinted it was considering adopting an even looser stance on monetary policy. However, policymakers said the fallout from the UK's vote had so far been muted.

"Although the outcome had led to a significant decline in government bond yields, overall the consequences had thus far been less marked than many had anticipated," read minutes from the latest ECB meeting, held at the end of July and released today.

The ECB added: "Money markets had continued to function smoothly ... the level of stress had been contained [and] financial markets had weathered the initial spike in volatility ... with encouraging resilience.

"The impact of the referendum was perceived to be geographically confined and to affect mainly the United Kingdom."

Despite performing better than expected in the wake of the vote, the ECB added: "Downside risks to the economic outlook for the Eurozone had increased."

"The uncertainty following the UK referendum was, in large part, of a political nature and due to the lack of clarity about the new relationship between the UK and rest of the EU ... The uncertainty of the situation itself could affect the global economy in deeper and less predictable ways ... Furthermore, other geopolitical risks could erode economic sentiment and add to the drag on growth."

Looking to the probability of further action from the central bank, the ECB noted that while it did not want to inflate expectations, "in the current environment ... future discussions were called for regarding wage trends, inflation expectations, the medium-term orientation of monetary policy and the time horizon over which a very accommodative monetary policy stance would remain warranted."

Analysts expect the central bank to bolster its stimulus package when it meets in September. Interest rates in the Eurozone are currently at minus 0.4 per cent, while the ECB is also embarking on an €80bn (£68bn) a month bond-buying programme.

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