Mario Draghi is betting that the banking system, rather than the bond market, is his best ally for now in the fight against deflation.
Acting in a more sweeping fashion than most investors anticipated, the European Central Bank (ECB) today cut interest rates to unprecedented lows, and its president unveiled measures to beef up lending for banks in a bid to revive inflation languishing at close to a quarter of his target.
With the policy toolbox now virtually exhausted and much hinging on whether banks boost credit themselves, failure to spur consumer prices will leave Draghi with little option but to enter the uncharted terrain of U.S.-style bond buying. Some executives have more hope than confidence that Draghi's current plan will work.
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