Inflation has undershot the ECB’s target for more than three years and is expected to stay below target for years to come as growth remains weak, unemployment hovers near 10 percent and the economy struggles with large slack. The rise in yields, which move inversely to prices, was being driven by the long-end of the curve, notably USA 30-year bonds, whose yields rose for a second straight session. The Standard & Poor’s 500 index shed 6 points, or 0.3 percent, to 2,180. So far, economic data do not suggest a major impact.
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“It has been well publicised that the European Central Bank does face difficulties now with pushing forward with more bond-buying so it should be no surprise if they now take their time”.
The central bank’s situation contrasts with that of the U.S. Federal Reserve, which is weighing withdrawing stimulus by raising interest rate as the U.S. economy recovers more strongly. The Fed nonetheless has some of the same concerns as the European Central Bank, including the potential fallout from Britain’s future EU exit.
The ECB is facing stubbornly low annual inflation of only 0.2 percent despite pumping 1 trillion euros ($1.1 trillion) in newly printed money into the banking system through bond purchases since March, 2015.
Repeating its usual forward guidance, the European Central Bank added that rates would stay at their current or lower levels for an extended period, a stance meant to reassure investors that any reversal in rates was many years away. It has also imposed a negative interest rate of 0.4 percent on deposits left with it by commercial banks.
He added that countries that eurozone governments that have the capacity to spend more should do so.
Elsewhere, the British pound tumbled on Wednesday following a recent rally, as traders fretted over mixed data in the wake of Britain’s European Union exit vote in June. Draghi has urged governments that have the money to invest more in infrastructure, and to cut back on red tape and regulatory permissions that make it harder to start a business.
“The European markets responded to “Brexit” with encouraging resilience. while the bloc’s July data showed that “Brexit” risks have not materialized as feared, at least not yet”, he said.
French shares held largely steady on Thursday as investors waited to see whether ECB President Mario Draghi will announce an extension of the bond-purchase program at the latest monetary policy meeting later in the day.
“The governing council confirms that the monthly asset purchases of 80 billion euros are meant to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim”, the bank said. It could also loosen its self-imposed limits on how much of any particular bond issue or issuer’s bonds it can buy.
The bank left that earliest end date unchanged.
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It also could eliminate its ban on buying bonds yielding less than the minus 0.4 percent deposit rate.
