December rate rise a strong possibility, says ECB’s Zigman

Another interest rate rise at the December meeting is highly likely, according to European Central Bank (ECB) Governing Council member Ante Zigman. His comments were published in a Bloomberg report.

ECB: Key Questions Answered

The ECB’s role and its influence on the Euro

Around 2% inflation is the European Central Bank’s price stability objective. Based in Frankfurt, Germany, the ECB serves as the Eurozone’s reserve bank, setting interest rates and managing the region’s monetary policy. To fulfil its primary mandate of maintaining price stability, the ECB mainly raises or lowers interest rates. Relatively high rates generally support a stronger Euro, while the reverse also applies. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.

Quantitative Easing (QE): How it works and affects the Euro

When conditions become extreme, the European Central Bank can turn to Quantitative Easing (QE). Under this policy, the ECB prints Euros to purchase assets from banks and other financial institutions, typically government or corporate bonds. The Euro usually weakens as a result. Used as a last resort, QE is an option when interest rate cuts alone are unlikely to deliver price stability. The ECB deployed it during the Great Financial Crisis in 2009-11, again in 2015 as inflation stayed persistently low, and during the COVID pandemic.

Quantitative tightening (QT): How it works and affects the Euro

Once an economic recovery is under way and inflation begins to rise, Quantitative tightening (QT) reverses the earlier QE process. With QE, the European Central Bank (ECB) supplies liquidity to financial institutions by purchasing government and corporate bonds from them. Under QT, it ceases further bond purchases and no longer reinvests principal repaid as its existing bond holdings mature. This is generally supportive, or bullish, for the Euro.

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