ECBs decision and alternative policies Essay Example | Topics and Well Written Essays - 2250 words - 1

ECBs decision and alternative policies - Essay Example Mario Draghi who is the president of the European Central Bank made the announcement that the bank’s governing council had plans of launching an initiative of asset backed securities which will but financial assets from banks and other investing institutions. This scheme will assist banks to sell bundles of assets including loans to companies and mortgages to the ECB, and even though the full details were not disclosed immediately, there is likelihood that the bank will commit a lot of Euros to this. The main idea is that the banks will develop a will to make loans to the real economy if they are able to package the debt into newer securities and consequently sell them to the ECB. This essay seeks to explain the decision that was taken by ECB concerning interest rates while at the same time analyzing the alternative policies that the bank could have considered. The ECB has two main objectives with the key objective of the two being to use monetary policy to maintain stability of prices (Kaltenthaler, 2006, p. 127). The bank has a set goal for an inflation rate that is acceptable, which is below zero every year and this is among the ways that the ECB is different when compared to the US Federal Reserve that has more flexibility in the establishment of permissible inflation rates. Another dissimilarity between the two banks is the fact that the ECB emphasizes more on transparency and making the investors aware of its intentions. The inflation target being the main goal for the bank has created a key source of criticism for the bank and numerous people believe that this main objective is too narrow and should encompass other equally important goals like the achievement of full employment. Further, the lesser objective if the ECB involves supporting the general economic policies that affect the Eurozone. This means that the bank attempts to make sure that the stated goals of the European