ECB: On hold for now - ANZ

Research Team at ANZ, notes that the ECB kept rates on hold while trimming its 2017 and 2018 GDP forecast by 0.1ppt to 1.6% and in addition there wasn’t much new information at the announcement and speech, leaving the bond market disappointed.

Key Quotes

“Draghi underscored the ECB’s ability to continue to provide accommodative support to meet its mandated goals, while also touting the effectiveness of policy support thus far. The inflation forecast was unchanged and Draghi acknowledged that core inflation is staying stubbornly low. He said the ECB didn't discuss an extension of QE today. However, they are leaving open the possibility, with committees examining further implementation as available assets for purchase shrink.

With the European economy languishing and inflation still well below target, there was a reasonable expectation that the ECB would tweak (or at least signal a tweak) in its policy stance overnight (eg announce an extension in the timeframe for asset purchases or ways to overcome the growing scarcity of bonds). In the end, the message was more one of ‘on hold for now’. Despite downgrading its inflation and growth forecasts modestly, and certainly still maintaining an easing bias, it was the fact that the ECB supposedly didn’t consider an extension of its QE program at this meeting that seems to have been what disappointed the market.

That extension (and other measures to be fair) may of course come in time, particularly if inflation continues to undershoot target. But certainly the ECB (and many central banks now) look to be taking more of a measured approach to additional policy easing compared with the not-too-distant past. That is only natural of course as monetary policy delves further into the ‘unknown’. But if the rhetoric from the G20 (and from the likes of the IMF, BIS, etc.) is to be believed( that measures beyond just monetary policy are needed to spur a more sustainable global growth trajectory), then it is possible that at some stage central banks will have to draw a line in the stand and say to governments “over to you”.”