ECB keeping monetary stimulus unchanged could imperil Italian banks

Business | 8 Dec 2016 4:56 pm

The European Central Bank is expected to extend its stimulus program for at least another six months when it concludes its latest policy meeting today.

Hours ahead of the meeting, major European benchmarks opened higher today.

Britain's FTSE 100 gained by 0.2 percent at 6,914.73 and France's CAC 40 added 0.3 percent at 4,709.35. Germany's DAX ticked up by 0.6 percent at 11,051.22. Futures augured a tepid start on U.S. markets. Dow futures gained 0.1 percent while S&P futures also added 0.1 percent. 

Last month's victory by Donald Trump in the U.S. election and the uncertainty generated by the recent Italian referendum, which prompted Premier Matteo Renzi to offer his resignation, will make the decision all the more straightforward, analysts say.

Renzi's defeat in the vote on constitutional changes he hoped would streamline decision-making in Italy has piled pressure on Italian banks, with the third-largest, Monte dei Paschi di Siena, scrambling to secure money to plug a black hole.

A decision to not extend the ECB's stimulus program — in which it buys 80 billion euros in bonds a month — past the current March deadline could worsen concerns about Italy, an economy that's barely grown for years.

"The fallout from a Trump presidency on global growth and the impact of the Italian referendum on the banking system has increased the risks around the growth outlook," said Ben May, lead eurozone economist at Oxford Economics.

As a result, May said, the ECB will likely take a "cautious response" to handling the expiration of its stimulus efforts.

ECB President Mario Draghi has already indicated that the bank's future stance will be clarified today, when it will have compiled new inflation and growth forecasts.-AP

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