DOES ECB DO THE RIGHT THING IN DEFLATION THREAT?

Hi everybody this week come to end and we can summarize some of the key aspects what has happened on financial markets last week.Us economy continued to expand but a low pace harsh winter ban the evolution of the economy.Manufacturing sector expand in march for the 10 consecutive month and the overall economy expand to 58 consecutive month.Jobs in Us increased to 192 k new jobs in march after an increase to 197 k in february,unemployment rate remain a 6,7 %.

In the Euro area consumer price index fell to concerning 0,5 % in march much below ECB forecast.ECB keep interest rate unchanged at 0,25 % although was rumors that ECB will cut interest rate.ECB officials in front with Mario Draghi adopt a dovish language in deflation issue.

The low inflation problem appeared form january 2014 which was to 0,7%.But all this time Mario Draghi has enusred us that level of inflation is under control and ECB is ready to act if conditions will required.From january to march the consumer price index fells to 0,5 % the low level in more than 4 years.

As I said at the begining of the article the ECB keep unchanged policy.This approach has attracted some criticism to Draghi policy.A delay in adopt any stimuls could track again euro area in recesion.A persistance in low inflation could determinated in the medium termn growth a weight of debt.

I observed in the past of the weeks important ECB officials talking about some measures that they could take such:negative deposit rates and quantitive easing.Jens Weidman is one the ECB offical which agree of using QE.Last week in a interview to Market News said:"Quantitive easing is theoretically posible as long as it dosen't infringe tha ban on monetary financing governments.

As for me I think that such measures could be little complicated to adopt that beacuse the ECB dosen't know what king of bonds to purchase.Theoreticaly in the euro area are 18 different sovereign bonds.Thursday Draghi emphasized for the first time that ECB cold adopt at what so called "Forging different QE"

Why different? different beacuse the financial markets in the euro area depends much from loans,loans which are injected by the ECB.So the eventual of bond purchases couldn't provide liquidity to small and medium enterprize.

Draghi said: "The banking system is more esential to the euro area than other financial systems that are more marked based" So in the end we just have to wait to see what will going on.

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DRAGHI FACING DILEMA TO ACT OR NOT

Hi everybody it passed at time since I wrote the last article.This week the most important events are with no doubt ECB Meeting and US jobs reports. One of the big issue of Euro area is deflation.

Are Euro area in deflation or not? Though question that because some ECB officials memebers do not speak the same language.Mario Draghi ECB chairman told that they are ready to act if conditions will require.

Inflatio in the euro area has envolved from 0,8% in january 2014 and now 0,5% in march.At this level we can say that Euro area is in deflation.If we look to euro currency we observe that euro is at high level against the important currencies.In an interview last week ECB official Christian Noyer said :"He is not happy to see euro rise" First of all a strong euro could aggravate european companies in exports and second and the most important characteristic of deflation is falling of prices which can cause global debt crisis explode again .

So today ECB meeting is very important event and we are aeger to see if Draghi learn  something from japanese lesson.It's more evident that ECB will act today.

Negative deposit rate is probably the exact scenario.ECB Coeure declared a few time ago:"ECB is considering a negative deposit rate very seriously"

Also Jens Weidman ECB:" Negative interest rate could counter the impact of strong euro"

Negative deposit rate is not only the measure that ECB officials had in mind.Other measure is quantitive easing.Marcel Fratzscher german economic profesor at Institute for Economic Research demand 600 billion euro bond purchases each month to combat deflation.About this tool Jens Weidman ECB official said:" Quantitive easing is theoretically posible as long as it dosen't infringe the ban on monetary financing of governments.In  my view I think that this measure will be a little though to put in practice that beacuse will require a purchase of 18 different sovereign bonds.

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