“Bear in mind that Super Mario has accustomed market participants to surpass their lofty expectations”, Stephane Ekolo, chief European strategist at Market Securities, said, using a common Draghi nickname.
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More bad news on lingering low inflation in the eurozone intensified expectations that Mario Draghi, the European Central Bank president, will expand the single currency bloc’s €1.1trn (€776bn) stimulus programme today.
The bank said it is reducing the interest rate on deposits from commercial banks from minus 0.2 percent to minus 0.3 percent.
In foreign exchange deals on Thursday the euro changed hands at $1.0558, having struck $1.0551 on Wednesday -which was the lowest level since mid-April.
Roughly 5 minutes before the decision was due the Financial Times inadvertently sent out a story saying rates had been left on hold and Reuters then sent conflicting headlines saying the central bank had both cut and held the deposit rate.
After inflation in the eurozone proved lower than expected in November at 0.1 percent, the European Central Bank now sees prices rising only 0.5 percent this year, 1 percent in 2016 and 1.6 percent in 2017. That can make credit easier to get and raise inflation, which is now considered to be too low at only 0.1 percent annually.
The ECB will also publish its latest staff projections for growth and inflation. Meanwhile, the European Central Bank is expected to introduce additional unconventional measures to drive rates in the opposite direction, even if that means putting further downward pressure on some government bonds that are already trading at negative nominal yields. “Probably more so than the asset purchase program”.
The economic recovery is real in the eurozone but remains subdued, Draghi said, calling on governments to keep up the pace of “structural reforms” that he said are needed to increase the monetary union’s growth potential.
A rate hike at the December 15-16 policy meeting would be the first in almost a decade.
The Standard & Poor’s 500 index rose two points, or 0.1 percent, to 2,081.
The dollar also lost upward traction against a basket of leading currencies, retreating from a 12 1/2-year high hit on Wednesday, when Federal Reserve chair Janet Yellen hinted at a USA rate hike later this month.
“It limits President Draghi’s ability to guide markets who will naturally become more suspicious of his power to deliver the Governing Council”.
As a result, the bank’s decision-makers are giving serious consideration to pushing the discount rate further into negative territory and extending its large-scale asset-purchase program (otherwise known as quantitative easing).
“The ECB surprised the market – but it wasn’t the kind of surprise that investors were expecting”, Razaqzada said.
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To be sure, many investors say an extension of QE would still be a significant step, not least because it would signal a commitment to easy-money policies.
