The growth impact will be felt through lower net exports to Britain, further limited by the depreciation of the pound, uncertainty about the nature of Britain’s future relationship with the European Union, and increased volatility on financial markets, the ECB said. Germany’s 10-year bund yields were largely flat, at around minus 0.04%. Draghi could indicate a willingness to extend the duration of the ECB’s bond-buying stimulus program. Tim Graff, the head of macro strategy for Europe at State Street, the financial services firm, said that they were “surprised by the relatively upbeat take on current events and their impact on inflation and inflation expectations”.
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The bank is now buying €80bn in government and corporate bonds each month. The ECB board remains “ready to use all available instruments for the duration of its mandate”, Draghi said.
That program is ongoing and was stepped up as recently as March, meaning the European Central Bank has not yet had a chance to see the full impact of the stimulus.
Ten-year yields across the euro zone opened some 2 basis points lower on Friday, while two-year yields were broadly higher, according to Tradeweb.
The International Monetary Fund on Thursday issued an “urgent” call for the world’s largest economies to roll out more growth-boosting policies to avert a growing risk of a downturn in world-wide output.
The main rate – which is used by countries across the eurozone – is now at an historic low of 0 per cent. Although Brexit remains the biggest risk threatening Eurozone’s recovery, there are more challenges to be addressed when the central bank meets later today, such as the troubled Italian banks and the plunging yields on governments’ debt which makes it hard for the ECB to pursue its €80 billion monthly debt purchases without amending the terms of their program. We do not rule out further depo rate cuts either, although we think these are less likely. It’s meant to run at least until the end of March 2017.
How much support will the ECB’s asset purchases offer? “I think in worrying about the coming months, whether we’ll actually be able to fulfill this objective, proper attention should be given to evidence we’ve given in past few months and the ability to exploit flexibility”.
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Analysts say the European Central Bank could opt later this year – in the fall or winter – to extend its bond-buying stimulus program past its expiry date of March 2017. He said that average lending rates in the euro area are at historical lows and credit volumes have been improving for several months.
