The ECB decided against extending the duration of its two-year bond-buying stimulus scheme under which it has been making purchases of €80bn a month.
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What will be interesting will be how Mario Draghi discusses how the Eurozone plans to weather the lingering impacts of Brexit while attempting to convince participants that the European Central Bank still has some ammunition to revive growth.
He added that countries that eurozone governments that have the capacity to spend more should do so.
The euro hit a almost two-week high against the dollar on Thursday after the European Central Bank left interest rates unchanged and stopped short of a formal commitment to further expand its asset-purchase program, which ECB head Mario Draghi said had not even been discussed.
It also said that its 80 billion euro per month asset purchase program is meant to run until the end of March 2017, or beyond if necessary, and until the bank sees a sustained adjustment in the path of inflation consistent with its inflation aim.
“This could come in the form of more stimulus from the ECB (European Central Bank) or BOJ, or a stronger consensus on the delay in United States rate hike for the rest of the year”.
But some analysts think the European Central Bank could announce it will prolong the timeline for asset purchases beyond next spring.
The headline rate remains at zero per cent, the deposit rate at negative 0.4 per cent and the marginal lending facility at 0.25 per cent.
Indeed, fresh quarterly forecasts to be unveiled by Draghi, could show a slightly lower path for underlying inflation while recent research published by the European Central Bank suggested that long term inflation expectations are drifting lower, an indication of waning confidence in the ECB’s policies. It forecasts expansion of 1.6 percent in 2017 and 2018, down from its June forecast of 1.7 percent in both years. That indicates it sees itself getting gradually closer to its goal of just under 2 percent over the longer term.
A negative deposit rate means banks have to pay to park excess cash at the ECB overnight, an unusual state of play that has squeezed banks’ profits and sparked fears lenders could pass the charges on to customers. While the eurozone is enjoying moderate growth, inflation continues to lag well below target, despite a raft of stimulus measures, and unemployment is high at 10.1 percent and falling only slowly.
The bank has implemented a raft of stimulus measures in an effort to raise inflation from the current annual rate of 0.2 percent, which it expects to be the average for this year. It has also offered ultra-cheap loans to banks, and offered unlimited amounts of short-term credit against collateral.
With the BoE Inflation report hearing ending on neutral footing investors may turn back to United Kingdom data to determine if the Bank of England unleashes further stimulus measure in the future.
Under the current rules of QE – imposed partly for political reasons – the European Central Bank can’t buy more than 33% of most bond issues, or any bonds yielding less than minus 0.4%.
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But Shilen Shah, bond strategist at Investec Wealth & Investment, said Draghi could ultimately be forced to launch more stimulus.
