European Central Bank opens door to more stimulus

The European Central Bank has hinted that it will unleash more stimulus to help support the flagging eurozone economy.

The central bank held rates steady at record lows on Thursday, but it opened the door to potential rate cuts and the revival of bond purchases designed to spur economic growth.

In a statement, the ECB said that staff had been directed to “examine options” including new asset purchases and a policy that would mitigate the impact of lower interest rates on regional banks.

A rate cut in September now “looks very likely,” according to analysts at Capital Economics.

The ECB has less room to maneuver than the US Federal Reserve, which is also expected to cut rates soon.

Mario Draghi, the outgoing ECB president hasn’t raised once during his tenure. His quantitative easing program, which involved creating new money to buy assets such as government bonds, only ended in December.

Data published this week in Europe have bolstered the case for action.

On Thursday, the Ifo Business Climate Index showed that Germany’s economy started the third quarter with a whimper, with weakness across manufacturing, trade and services.

Eurozone manufacturing data for July was also was weaker than analysts had expected. One key manufacturing output index published Wednesday dropped to its lowest level since early 2013.

This is a developing story …