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The articles about Europe mention that the European Central Bank (ECB) recently reversed its policies. What was
this policy reversal, and why was it made?
a.The ECB had recently started buying bonds, intending to reduce interest rates. Now it has postponed the interest rate cuts. The ECB did this because Inflation was below target and manufacturing output is falling.
b.The ECB had recently started buying bonds, intending to reduce interest rates. Now it has postponed the interest rate cuts. The ECB did this because Inflation was above target and manufacturing output was rising too fast.
c.The ECB had recently stopped buying bonds, intending to raise interest rates. Now it has postponed the interest rate increase. The ECB did this because Inflation was below target and manufacturing output is falling.
d.The ECB had recently stopped buying bonds, intending to raise interest rates. Now it has postponed the interest rate increase. The ECB did this because Inflation was above target and manufacturing output was rising too fast.
LONDON — The eurozone economy received a double dose of bad news Monday as inflation fell further away from the European Central Bank’s (ECB) target and a closely monitored survey showed the crucial manufacturing sector shrinking at its fastest rate in six years. The developments suggest Europe is struggling to cope with global trade tensions and the uncertainty of Brexit, among other things. They are also likely to cause concern among policymakers at the ECB. In an acknowledgement of the more challenging economic environment, the ECB last month delayed the earliest date for any rate increases and announced plans to offer banks cheap loans. Rate-setters are particularly concerned by stubbornly low inflation even after solid economic growth over the past few years has helped lower unemployment to decade-low rates. Monday’s official figures from statistics agency Eurostat showed consumer prices rose by only 1.4 percent in the year to March, down from 1.5 percent the previous month. The ECB aims for an inflation rate of just below 2 percent. There was further disappointing news from financial information IHS Markit, which publishes monthly surveys into the eurozone economy that feed into the ECB’s policymaking deliberations. It found that the eurozone purchasing managers’ index for the manufacturing sector — a broad gauge of economic activity — fell to 47.5 points in March from 49.3 the previous month. Anything below 50 indicates a contraction in activity and March’s level points to a 1 percent monthly decline in output. March’s rate is the lowest since April 2013 and stemmed from particularly weak levels of new orders. “Looking at the forward-looking indicators, downside risks have intensified, and the trend could clearly deteriorate further in the second quarter,” said IHS Markit’s chief business economist, Chris Williamson. “Concerns over trade wars, tariffs, rising political uncertainty, Brexit and perhaps most importantly deteriorating forecasts for the economic environment both at home and in export markets, were widely reported to have dampened business activity and confidence.”
FRANKFURT, Germany — The European Central Bank is ready to take further action to help the economy if the outlook takes a sudden turn for the worse, bank President Mario Draghi said Wednesday. Speaking at a conference on monetary policy held by Frankfurt’s Goethe University, Draghi said the economy of the 19 countries that use the euro faced “pervasive uncertainty” from a slowdown in global trade, while domestic demand remained robust. He said the bank could respond to weaker than expected inflation by adjusting its timetable for interest rate increases. Right now, the ECB says rates will not rise before the end of the year. The bank’s benchmark rate for lending to banks stands at a record low of zero. The rate on deposits left at the ECB by commercial banks is minus 0.4 percent — in effect a penalty aimed at pushing banks to lend excess cash rather than let it pile up at the ECB. The ECB uses its interest rate benchmarks to steer the cost of borrowing for banks, and, through that, borrowing costs for businesses and consumers. Lower rates should encourage borrowing and more economic activity. The central bank took steps at the March meeting to maintain a strong level of stimulus, changing course just a few weeks after phasing out a massive stimulus program that it had carried on for almost four years and through which it had bought 2.6 trillion euros ($2.9 billion) in bonds. The shift followed a similar change of stance by the U.S. Federal Reserve, which has paused its series of rate increases amid fears about the health of the global economy. Recent economic indicators have sent mixed signals. A survey of manufacturing activity in the eurozone pointed sharply down, while employment figures and wages continue to improve. Unemployment is at 7.8 percent, the lowest since October 2008. The European Union’s executive commission forecasts 1.3 percent growth in gross domestic product for the eurozone economy this year. An important worry for export-oriented Europe is the possibility that the U.S. and China will fail to work out their trade disagreements and wind up imposing more tariffs, or import taxes, that would further slow global trade. Another threat is the possibility that Britain could leave the European Union without a negotiated agreement to smooth the transition. A “no-deal” Brexit could lead to new tariffs and customs checks that would disrupt the movement of goods and parts.
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