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KUWAIT CITY — Kuwait's ruler called Tuesday on officials in the oil-rich state to seek alternative revenue sources and reduce public expenditure after state income dropped 60 per cent due to a sharp slide in crude prices.

Addressing parliament at the beginning of its new term, Sheikh Sabah Al Ahmad Al Sabah urged citizens to understand the new measures.

"The decline in global oil prices has caused state revenues to drop by around 60 per cent while spending remained without any reduction leading to a huge deficit," the emir told lawmakers.

He called for "speedy actions to adopt serious and fair measures to complete economic reforms... and reduce public expenditures".

"Any delay would only increase the budget deficit and make the cost [of reforms] higher," the emir said.

Oil prices have lost around 60 per cent of their value since June 2014, hitting the coffers of energy-dependent countries like Kuwait.

Oil income accounted for about 94 per cent of Kuwait's revenues during the past 16 years, when the emirate posted a budget surplus and piled up massive fiscal reserves of around $600 billion (543 billion euros).

The reserves are invested mostly abroad by the country's sovereign wealth fund.

The International Monetary Fund said in a report last week that under existing conditions, the reserves would be enough to last Kuwait for the next 23 years.

But Sheikh Sabah said the government should avoid tapping the sovereign fund to finance the budget shortfall.

Based on figures published by the finance ministry, Kuwait's revenues in the first half of 2015 hit 8.34 billion dinars ($27.6 billion), way below the 15.1 billion dinars of income in the same period of last fiscal year.

The revenues, however, amounted to more than half of the 12.2 billion dinars income projected for the whole year.

At the start of 2015, Kuwait lifted subsidies on diesel, kerosene and aviation fuel. It is considering similar measures for electricity, water and petrol.

Public spending has risen more than three-fold in Kuwait over the past seven years, with the overwhelming majority of the increase going to wages and subsidies.

The tiny emirate has a native population of 1.3 million and is also home to about 2.9 million foreigners.

AMMAN — Investments and Integrated Industries Company (IIIC) lowered its bank debts to JD23.1 million at the end of June 2015 from JD27.3 million at the end of last year. 

According to financial information disclosed to the Jordan Securities Commission, the company's finance expenses during the first half of this year and during 2014 amounted to JD0.5 million and JD0.8 million respectively.

As a Jordanian holding company, the unmanned IIIC manages its subsidiaries or other entities where it owns equity; invests in shares, stocks and securities; extends loans, guarantees and financing to subsidiaries; and exercises financial and administrative control on one or more firms that become a subsidiary.

IIIC's  interim summary of consolidated financial statements as of June 30, 2015, showed a JD0.6 million profit gained almost entirely from an unspecified investment income that totalled JD0.9 million before deducting finance expenses.

Within this amount, nearly JD30,000 flowed from two subsidiaries.

A negligible JD12,850 dripped as profit from Quality Printing Press  (QPP), a limited liability company capitalised at JD3.2 million, 82.6 per cent of which owned by IIIC. 

QPP's net sales of paper stationery products such as photocopy paper, cash rolls, fax and thermal cash rolls, plotter rolls, adhesive rolls, exercise notebooks, college notebooks, university notebooks, writing pads and drawing pads, amounted to JD4.3 million during the first half of this year.

But after taking into account production costs and various expenditures, including finance expenses, QPP's net profit came at JD12,850.

Another insignificant JD17,176 trickled as a yield from Quality Food, a limited liability company capitalised at JD3 million, 98 per cent owned by IIIC.  

Quality Food stopped operations in May 2011 and its premises were leased for three years to Amana Food Industries in April 2013.

"Because imported meat was essential as a raw material in our industry, we faced the risk of border closure in case of contagious diseases," IIIC's 2014 annual report said.

It also listed stiff price competition in the domestic market from lower quality local or imported products as a reason for halting production besides water scarcity and the fluctuation in the euro exchange rates.

No activities were mentioned at the Integrated Mining Company, another subsidiary, and at Al Matn Investment Company, a subsidiary that was voluntarily liquidated last year.

IIIC indicated in the report that its subsidiary Oran Investment Company planned to expand activities in the Amman Stock Exchange through investing in companies that have strategic dimension and low risk.

The plan for QPP was to lift sales by 5 per cent from 9,646 tonnes in 2014 to 10,128 tonnes in 2015 and the sales amount by 5 per cent  from JD9 million to JD9.5 million, in response to international economic conditions and the slight rise in raw material costs.

Besides mentioning fluctuations in international prices of raw materials as a risk associated with QPP's operations, the report pointed to an increase in the imports of finished products at lower prices, especially in the absence of adequate customs protection.

"QPP's market share of the photocopy paper stands at about 48 per cent," the report indicated, noting that the market needs 11,000 tonnes of this product.

"The market needs 4,600 tonnes of school notebooks and QPP has a 40 per cent share of this," it said.

Leaconfield Capital and Korerseas were among the main QPP suppliers.

IIIC's balance sheet as of June 30, 2015, showed total assets at JD34.2 million, of which JD20.2 million were financial assets at fair value.

JD10.2 million were current assets, mostly receivables owed to the company by commercial businesses and related parties, and JD2.9 million were inventory. 

Capitalised at JD14.5 million, the shareholders equity stood at JD8.1 million due mainly to JD6.2 million of accumulated losses at the end of June 2015.

According to the annual report, capital investment at the end of 2014 amounted to JD24.1 million.

The performance of IIIC was diminished last year as the consolidated financial statements as of December 31, 2014, showed a drop in QPP sales and in gross profit.

Sales declined by 6.2 per cent from JD9.6 million in 2013 to JD9 million, JD0.2 million of which were exports to Iraq.

Gross profit fell by 42 per cent from JD1.1 million to JD0.6 million, but the net result was a JD0.9 million loss, more than double the JD0.4 million loss posted at the end of 2013.   

A breakdown of IIIC's earnings and profit reveals that QPP was in the red by JD1.4 million but the loss was minimised by a JD0.5 million profit gained from an unspecified investment income that totalled JD1.1 million before deducting finance expenses.

At the end of the last year, IIIC was owned by Elia Nuqul and Sons Company (53.2 per cent), Elia Qostandi Farah Nuqul (6.7 per cent), Samira Shukri Rizek Rizek (6.7 per cent) and Ghassan, Marwan, Lina and Randa Elia Qostandi Nuqul each holding a 6.7 per cent stake.

"The company's shares are not traded on the Amman Bourse as they are entirely owned by the Nuqul family," the annual report said.

An official at the bourse told The Jordan Times that the wording was not correct as IIIC is listed and that its shares can be traded.

"You can place an order to buy IIIC shares but the question is finding somebody willing to sell," he said.

126 workers were employed by IIIC at the end of last year, all of them at QPP.

GENEVA — The benefits of a treaty that will cut red tape at borders and standardise customs procedures are much larger than previously thought and could add $3.6 trillion to annual global exports, the World Trade Organisation (WTO) said in a report on Monday.

The WTO's trade facilitation agreement (TFA), struck at a ministerial conference in Bali in December 2013, will do more to boost trade than if all the world's import tariffs were removed, cutting costs 9.6 to 23.1 per cent, the WTO calculated.

"You could say that it's global trade's equivalent of the shift from dial-up Internet to broadband," said WTO Director General Roberto Azevedo.

Once the new rules come into effect, which Azevedo hoped would happen by the end of 2016, it will cut waiting times at customs, lessen the potential for corruption and hasten foreign direct investment into weaker economies.

The TFA had previously been expected to add $400 billion to $1 trillion to trade, according to various economic studies.

Many trade experts had shied from using the upper end of those forecasts, but the WTO's own research found they were on the low side.

"Overall, the simulations confirm that the trade gains from speedy and comprehensive implementation of the TFA are likely to be in the trillion-dollar range, contributing up to almost 1 per cent to annual gross domestic product growth in some countries," the report said.

The agreement, which was created in December 2013, will come into force when two-thirds of WTO members have ratified it. Fifty have ratified it so far, out of 161 current WTO members.

The report used two main models for estimating the gains from the agreement: a "computable general equilibrium" (CGE) simulation, which makes assumptions about "what if" certain barriers are removed, and a "gravity model", based on historical evidence of removal of trade barriers.

The CGE model predicts exports will rise by at least $750 billion to well over $1 trillion per year, adding 0.34 to 0.54 percentage points to annual global economic growth, it indicated.

Gravity model estimates put the annual export gains at $1.1 trillion to $3.6 trillion, the report concluded. It did not estimate the impact on gross domestic product under the gravity model.

BEIJING — China has never said the economy must grow 7 per cent this year, Premier Li Keqiang said in comments reported by the government ahead of a key meeting this week that will set economic and social targets for the next five years.

Li's comments coincide with remarks by a top central bank official, who said on Saturday that China would be able to keep annual economic growth at around 6-7 per cent over that period.

The statements come at a time of growing concern in global financial markets over China's once mighty economic juggernaut.

China cut interest rates for the sixth time in less than a year on Friday. Monetary policy easing in the world's second-largest economy is at its most aggressive since the 2008/09 financial crisis, as growth looks set to slip to a 25-year low this year of under 7 per cent.

China's economy grew 6.9 per cent in the July-to-September quarter from a year earlier, data showed last week.

Speaking on Friday at the Central Party School, which trains rising officials, Li said the economic difficulties ahead for China should not be underestimated.

His report to the annual meeting of parliament set this year's gross domestic product (GDP) growth target at about 7 per cent.

"We have never said that we should defend to the death any goal, but that the economy should operate within a reasonable range," the central government paraphrased Li as saying in a statement released on its website late on Saturday.

Chinese leaders will signal that growth is their priority over reform by setting a growth target of around 7 per cent in the next long-term plan, policy insiders say.

The party's central committee will meet from Monday to Thursday to set out the 13th Five-Year Plan.

The party's People's Daily on Sunday listed on its microblog what it said were 10 focus areas for the Five-Year Plan, including maintaining economic growth, improving the industrial structure and pushing forward innovation. It gave no details.

Nevertheless, while the focus is on growth, China is still moving ahead on financial reforms.

Besides cutting interest rates on Friday, the People's Bank of China (PBoC) said it was also freeing the interest rate market by scrapping a ceiling on deposit rates.

The change, which Beijing had promised to deliver for months, will in theory allow banks to price loans according to their risk, and remove a distortion to the price of credit that analysts say fuels wasteful investment in China.

It should also offer some reassurance to financial markets after they were unsettled by the chaotic responses to the country's recent stock market plunge and then a yuan  devaluation.

The deposit rate reform builds on the introduction of deposit insurance, creating space for smaller banks to compete with their bigger rivals

It is seen as a long-term step towards a more market-driven banking sector, if smaller banks lend funds to parts of the economy shunned by large banks.

‘New normal’

China's economic growth has not been bad over the last year considering the problems in the global economy, Li said.

There were reasons for optimism going forward, such as rising employment, more spending on tourism and a fast growing service sector, Li added.

"The hard work of people up and down the country and the enormous potential of China's economy gives us more confidence that we can overcome the various difficulties," he  elaborated.

While the government has flagged a "new normal" of slower growth as it tries to shift the economy to sustainable, consumption-led growth, official data shows it has consistently at least met, and mostly exceeded, the growth targets it sets.

Beijing needs average growth of close to 7 per cent over the next five years to hit a previously declared goal of doubling GDP and per capita income by 2020 from 2010.

But the stock market turmoil and unexpected fallout from the modest yuan devaluation have raised fears among policy makers that an abrupt slowdown in growth could spark systemic risks and destabilise the economy.

The International Monetary Fund (IMF) said this month that China's policy makers should forge ahead with structural reforms to put the world's second-largest economy on a more sustainable footing, even as growth is likely to slow further to 6.3 per cent in 2016.

The IMF expects China's growth to slow to 6.8 per cent this year from 7.3 per cent in 2014, and weaken further in 2016, maintaining its existing forecasts.

"Modest further policy support to ensure that growth does not fall sharply is likely to be needed, but further progress in implementing the authorities' structural reforms will be critical for private consumption to pick up some of the slack from slowing investment growth," IMF stressed in its World Economic Outlook.

Beijing faces a tough balancing act in preventing a sharp slowdown, reducing vulnerabilities from excess leverage and strengthening the role of market forces in the economy, the IMF indicated.

The credit and investment boom, fanned by Beijing's massive  stimulus package implemented during the height of global financial crisis, resulted in heavy debt among local governments  and widespread factory overcapacity.

"There are risks of a stronger growth slowdown if the macroeconomic management of the end of the investment and credit boom of 2009-12 proves more challenging than expected," the IMF said.

The IMF reaffirmed its calls for China to press ahead with market-based currency reforms, following the country's surprising move to devalue the yuan in August.

"The recent change in China's exchange rate system provides the basis for a more market-determined exchange rate, but much depends on implementation," the IMF said.

"A floating exchange rate will enhance monetary policy autonomy and help the economy adjust to external shocks, as China continues to become more integrated into both the global economy and global financial markets," it added.

China has described the yuan devaluation as modest and part of reforms to make the currency more market-driven, which coincided with the country's push to have the yuan included in the IMF's Special Drawing Rights (SDRs) basket.

But the move spooked financial markets, as investors feared it could lead to competitive devaluations which could destabilise the fragile global economy.

Chinese officials have pledged to push financial reforms to make the yuan more convertible as they seek to win the IMF's approval for the yuan's inclusion into SDRs.

However, the central bank has intervened heavily to support the yuan since the devaluation, alongside massive government efforts to stem a slide in the stock market.

The IMF board is scheduled to decide in November whether the yuan will join the Special Drawing Rights basket.

AMMAN — Chairman of Amman Chamber of Industry (ACI)  Ziad Homsi on Sunday urged Jordanian manufacturers to benefit from the services and programmes offered by The German Jordanian Economic Cooperation Office, which was established at ACI headquarters some two years ago. 

Homsi said, the office, supported by the German Agency for International Cooperation, has offered technical advice to 60 industrial establishments to enable them penetrate the German and European markets.

In a press statement issued Sunday, the ACI head said  Jordanian firms in the sectors of oil, medical waste and solar energy had made partnership deals with German counterparts over the past two years, adding that the office helped Jordanian industrialists in expanding their networking with German businesses, in addition to expertise and consultation exchange programmes. 

AMMAN — The Housing Bank announced Sunday in a press statement that it increases its pretax profit by 8 per cent to JD132 million by the end of the third quarter of 2015, compared with JD122.2 million recorded during the corresponding period of last year.

"Net profit after tax amounted to JD93.1 million, 3.2 per cent higher than the JD90.2 million in the same period of 2014," the statement indicated, noting that the income tax rate rose from 30 per cent in 2014 to 35 per cent this year.

Chairman Michel Marto attributed the results to the successful operations that relied on a prudent strategy. According to the statement, total assets went up to JD8 billion, an increase of 4.7 per cent from the end of 2014, customer deposits rose 6 per cent to JD5.8 billion, and net credit facilities portfolio surged 34.2 per cent to JD3.6 billion.

Performance indicators showed capital adequacy at17.5 per cent and liquidity ratio at 137 per cent, higher than the rates required by the Central Bank of Jordan. Return on assets came at 1.6 per cent, return on equity at 12.1 per cent, as the ratio of total loans to customer deposits was about 68 per cent.

AMMAN — Arab Bank Group announced Saturday in a press statement that it posted $615.1 million net profit after tax and provisions for the period ending September 2015, compared to $614.2 million in the same period of last year.

Net pretax profit amounted to $818.7 million." Shareholders equity reached $8.2 billion as of September 30, 2015," the statement indicated. "Loans and advances grew to $23.6 billion and customer deposits reached $34.8 billion." Arab Bank Chairman Sabih Masri said in the statement: “The results reflect the successful execution of the bank's strategy, despite the challenging environment, and the focus on core banking activities and high quality asset." Nemeh Sabbagh, Arab Bank’s chief executive officer, added that the results demonstrated the focus on a diversified business model and a prudent risk strategy.

The ratio of non-performing loans improved to 4.8 per cent and the provisions coverage ratio for non-performing loans was over 100 per cent, excluding the value of collaterals held. Loans-to-deposit ratio stood at 63.1 per cent and capital adequacy ratio  at 14.02 per cent. A court in New York set May 16, 2016, to implement a settlement reached to resolve a civil lawsuit filed against the bank. 

AMMAN — International Finance Corporation (IFC), a member of the World Bank Group, and the Association of Banks in Jordan (ABJ) announced Saturday in a press statement a set of banking industry guidelines designed to help indebted businesses get back on their feet.

"The guidelines, which have been endorsed by the Central Bank of Jordan, will make it easier for financially-troubled firms to reach an agreement with creditors outside of the court system," the IFC said in the statement.

"The guidelines will give viable businesses valuable breathing room, allowing them to re-organise and emerge from the process stronger than before." “These guidelines will minimise the cost and the time associated with the settlement of indebted businesses, and therefore, increase the recovery rates for creditors,” said ABJ Chairman Musa Shehadeh.

In Jordan, settling a bankruptcy case through the court system can take up to three years. The guidelines are expected to shorten the settlement time to less than one year.“An efficient insolvency framework is vital to fostering a strong business environment and driving economic growth,” says Ahmed Attiga, IFC country manager in Jordan. The project is supported by the State Secretariat for Economic Affairs, Switzerland.

BEIJING — China's central bank cut interest rates on Friday for the sixth time in less than a year, and it again lowered the amount of cash that banks must hold as reserves in a bid to jump start growth in its stuttering economy.

Monetary policy easing in the world's second-largest economy is at its most aggressive since the 2008/09 financial crisis, as growth looks set to slip to a 25-year low this year of under 7 per cent.

Yet, underscoring China's drive to deepen financial reforms which many believe are necessary to invigorate the economy, the People's Bank of China (PBoC) said it was freeing the interest rate market by scrapping a ceiling on deposit rates.

The change, which Beijing had promised to deliver for months, will in theory allow banks to price loans according to their risk, and remove a distortion to the price of credit that analysts say fuels wasteful investment in China.

China's policy loosening came a day after the European Central Bank said it could give a bigger policy jolt to the economy as soon as December to fight falling prices.

"We've got half the world's central banks in easing mode," said Joe Rundle, the head of trading at ETX Capital in London. "And we'll probably see more easing from China to come."

The PBoC said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points to 4.35 per cent, effective from October 24. The one-year benchmark deposit rate was lowered by 25 basis points to 1.5 per cent.

The reserve requirement ratio (RRR) was also cut by 50 basis points for all banks, taking the ratio to 17.5 per cent for the biggest lenders, while banks that lend to agricultural firms and small companies received another 50-basis-point reduction to their RRR.

The late-evening moves come just ahead of a high-level meeting in Beijing starting on Monday where senior Chinese leaders will thrash out the country's economic blue-print for the next five years.

Investors in Europe took cheer and shares soared, while the Chinese offshore yuan fell against the US dollar.

"In the next step, monetary policy ... will be kept not too loose or too tight to ensure stable economic growth," the PBoC said in a separate question-and-answer session.

It added that China's current muted consumer inflation and falling market interest rates provided a window for the country to liberalise its deposit rates.

Sobering data

It has been a tumultuous year for China's economy.

A summer stock market plunge and shock devaluation of the yuan in August roiled global markets and fanned fears of a hard landing, prompting Chinese leaders to take drastic measures to assure investors they have the economy under control.

Friday's easing came minutes after Premier Li Keqiang was quoted on state radio as saying that China will make "reasonable use" of rate and RRR cuts to keep its economy growing at a reasonable pace.

Senior Chinese leaders do not usually comment directly on the country's rate or RRR adjustments.

The cuts came in the same week as sobering economic data for the third quarter that demonstrated the daunting challenges faced by the country's leaders, not least in achieving a growth target of around 7 per cent set by the government.

Data released on Monday showed China's economy grew 6.9 per cent between July and September from a year earlier, dipping below 7 per cent for the first time since the global financial crisis.

With Chinese imports tumbling for the 11th straight month in September and producer prices stuck in deflation for more than three years, some analysts say China's policy makers have their work cut out.

"We're still waiting for clear evidence of an economic turnaround," analysts at Capital Economics said in a note to clients. "We are retaining our forecast that benchmark rates and the reserve requirement ratio will both be cut once more before the end of the year, with a further move in both early in 2016."

According to a top PBoC policy maker, China will be able to keep annual economic growth at around 6-7 per cent over the next three to five years.

The comments from Yi Gang, vice governor of the PBoC, appeared to be aimed at reassuring investors this level of growth, China's slowest pace in two decades but still faster than other major economies, is the Chinese economy's "new normal".

"China's future economic growth will still be relatively quick. Around seven, six-point-something. These will all be very normal," he told a conference in Beijing.

Yi said China in the future would lower the reserve requirement ratio for banks, the amount of cash that major lenders need to keep on hand — at a "normal" pace.

"Our reserve requirement ratio is still at a relatively high level so there is still room to lower the RRR. In future, we will proceed to lower the RRR at a normal pace," he added.

Yi elaborated that the PBoC planned to keep interest rates at a reasonable level to reduce the corporate debt burden, and noted that interest rate liberalisation does not mean that the central bank would reduce regulation of rates.

China will also continue to set benchmark lending and deposit rates for some time, he stated, but these rates would not restrict market pricing.

Yi noted that China's stock market, which has fallen sharply since June, had completed most of its adjustments and that the yuan, which was buffeted in the wake of a surprise devaluation in early August, had "basically" stabilised.

"Following August 11, our original intention was to pursue market reforms. But after that, we realised there was a relatively big depreciation pressure [on the yuan], and so we decided to resolutely stabilise the yuan," he explained.

The PBoC was looking into leverage levels in the debt market, Yi remarked.

He said China did not have exceptionally high debt levels, and while the bank was not overly anxious about cutting the level of leverage in the economy, the overall strategy is to stabilise leverage levels.

"I want to especially mention this: I am now also focused on the leverage level in China's debt market," he concluded.

Separately, China is seeking to assert its growing influence on global oil markets with a yuan-denominated crude futures contract expected to be launched this year.

At the same time, analysts warn that the second-largest oil consumer after the United States will struggle to compete with more established benchmarks such as London's Brent North Sea crude and New York's WTI. 

"China is the world's largest oil importer and is going to become the largest oil consumer in the future, so it makes sense for the country to be the place for an oil futures [contract] in Asia," Lin Boqiang, director of the Energy Economics Research Centre at Xiamen University, told AFP. 

China's consumption will exceed that of the United States by 2034, according to the US Energy Information Administration.

The country produced about 4.6 million barrels per day (mbpd) of oil in 2014, while the country's average net imports reached 6.1 mbpd. 

The influence of Asia, and China in particular, has been growing on international commodity markets in recent times. 

"China's vision is to have these commodity markets priced on its own exchanges," said Daniel Colover, associate editorial director at price reporting agency Platts. 

It is also consistent with China's gradual moves towards greater internationalisation of its currency.

The Shanghai International Exchange is working on a final draft to be approved by the China securities regulatory commission before a comprehensive mock trading exercise. Market participants expect an official launch by the end of 2015.

Liquidity is key

The initial target of the new contract seems to be local companies and foreign companies with large interests in China, even if trading will be open to international players. 

"Part of the reason China wants to launch this contract is to allow domestic hedging" that would protect against local price volatility, according to Wiktor Bielski, global head of commodities research at VTB Capital.

But the contract could struggle with liquidity, especially if it fails to attract foreign investors, as according to Boqiang, "there are not many players on the Chinese oil market, since the sector is highly monopolised".

The Chinese oil sector is dominated by the country's national oil companies and even if some private companies have emerged, their scope remains limited. 

"I don't know why someone doing business outside China would be interested, given the longer-established, more transparent and more liquid alternatives are already available elsewhere," said Julian Jessop, head of commodities at research group Capital Economics.

Two-thirds of the world's oil is currently priced against the Brent benchmark. 

Market influence

Some grey areas remain around plans for the contract, in particular the crude which is going to be used as underlying instrument. 

The derivative, or promise to take or make delivery of a volume of crude at a future date, will be based on a medium and sour crude, a quality favoured in Asia and imported mainly from the Middle East. Thus supply will likely continue to be influenced by external factors.

"A lot of people in the industry, a cross section of the oil market, trading houses, oil majors, producers, are keen to see how it behaves and how it is adopted," said Colover.

For Bielski, market adoption should not be a major hurdle. In fact, volumes on the exchange could develop very quickly thanks to retail investments, he said.

Plans for smaller lot sizes, 100 barrels versus 1,000 for Brent, seems to be tailored to retail investors.

According to Bielski, the iron ore futures contract on the Dalian Commodity Exchange, which influences the price of steel, did not trade for the first six months, but volumes then "exploded" on the back of "punters" trading. 

In China, the amount of liquidity available to retail investors with money is growing faster than the number of products they can invest in, he added.

"What if that same thing happens to oil? Chinese markets are going to become more dominant and more importantly they are going to export contagion risk," predicted Bielski.

VALLETTA/FRANKFURT — The European Central Bank (ECB) is studying new stimulus measures that could be unveiled as soon as December and is prepared to cut its deposit rate deeper into negative territory if needed to fight falling prices, its president said on Thursday.

Consumer prices in the 19-country eurozone slipped by 0.1 per cent in September, prompting calls for the ECB to expand or extend its 60 billion euros ($68 billion) a month of asset purchases. The programme was launched in March to help push inflation back to the ECB’s target of just under 2 per cent.

ECB chief Mario Draghi indicated that falling inflation expectations, driven in part by lower-than-expected demand for oil, have led the central bank to consider a wide variety of possible measures, including a deposit rate cut, to shore up inflation.

“We are ready to act if needed... and we are open to the full menu of monetary policy,” Draghi said. “The Governing Council has tasked the relevant committee to examine the pros and cons of various measures... The attitude is not wait and see but work and assess.”

Draghi added that the ECB’s governing council, which includes the executive board and the heads of the bloc’s 19 central banks, would be in a better position to make a decision once it gets new inflation forecasts from its staff in December.

He highlighted a stronger euro, falling commodity prices and a worsening of the economic conditions in emerging markets as the key risks that the ECB will monitor. A fading of the base effect from 2014’s oil price plunge may also have helped push inflation higher by then.

“In this context, the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting,” he said.

Deposit rate cut

After stating a year ago that no further cuts to the deposit rate, already in negative territory, were on the cards, Draghi noted that was one of the instruments the governing council had discussed and may use.

“When expectations of inflation become more and more negative, we have higher and higher real rates,” Draghi said. “That’s one of the reasons why we considered other non-standard policy measures, one of which was the negative rate of the deposit facility.”

The ECB first pushed its deposit rate below zero in June 2014, effectively making banks pay to park funds overnight at the central bank. Two months later, it was trimmed to -0.20 per cent, and Draghi said no additional rate cut was possible.

He dismissed suggestions that this turnaround might dent the ECB’s credibility in financial markets.

“The credibility of a central bank is measured by its ability to comply with its mandate and to this extent any instrument could be potentially used,” Draghi explained “Given the conditions prevailing a year ago, that was the statement. Today things have changed.”

QE

Before Thursday, financial analysts’ core view was that the ECB would intervene in December or January to extend or expand its quantitative easing (QE) scheme, while few expected a deposit rate cut.

Draghi’s words strengthened those expectations but gave little away as to which tool the ECB was likely to choose.

“It was an open discussion on all the monetary policies,” Draghi said. “We have discussed some other monetary policy instruments besides [a deposit rate cut].”

Analysts have warned that upping the pace of purchases may create a shortage of bonds down the line and that extending the scheme may require the ECB to change some of the rules of engagement to avoid hitting technical limits.

These issues, along with the ECB’s failure to revive the market for asset-backed securities, have raised the prospect of an expansion in the range of assets that the ECB can buy to include corporate bonds or even equities.

But its direct involvement in private corporations could meet political and internal resistance.

In a direct call to eurozone governments to add their weight to a still-tentative recovery in the region, Draghi stressed that structural reforms and fiscal measures to stimulate demand were also needed.

“Monetary policy shouldn’t be the only game in town,” Draghi emphasised. “We have to address also the structural component of this recovery so we can move from a cyclical to a structural recovery.”