Some analysts thought the bank might commit to a longer program.
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The ECB kept all policy rates unchanged, maintained its monthly QE purchases of EUR80bn and still intends to end its purchases in March 2017.
“From a macro perspective, European economic data has remained resilient following the UK’s decision to leave the EU”, he said. Chronically low inflation suggests the economy is not hitting on all cylinders, even though the currency union is enjoying a moderate economic upswing. Yet, the eurozone economy remains sluggish, debt is still rising substantially and the euro continues to be debased.
New inflation projections compiled by ECB staff may give some hint about the bank’s future actions.
Fresh quarterly forecasts to be unveiled by Mr 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. Lowering them would support arguments for more action.
Indeed, price growth, holding near zero, has undershot the ECB’s 2 per cent target for more than 3 years and will miss it for at least another 2, a risk to the bank’s credibility and the viability of inflation targeting. In Asia, there were declines across most markets on Thursday as investors weighed what the Fed’s Beige Book meant for USA interest rates.
The central bank also revised its 2016 eurozone growth forecast to 1.7 per cent, up 0.1 percentage points over a prior estimate, but pushed it lower for next two years by the same amount to 1.6 per cent. United States stocks have been trading in a tight range in recent months amid growing uncertainty over the U.S. central bank’s interest-rate decision expected later this month.
While the shaky outlook in Europe and the United States was not enough to spur the European Central Bank into action, it may prove a positive for riskier investments like the Chinese and other emerging markets if the end result is to stave off another rise in U.S. Federal Reserve interest rates. The question is whether the European Central Bank needs to do more now, or wait and let previously announced measures take their full effect before contemplating additional steps. 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. But so far there has been little hard data to show that’s happening.
The choice is then between tweaking purchase rules or going for a bigger redesign.
The bank also said that the monthly asset purchases of Euro 80 billion will “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”.
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It is clear that the ECB’s bond-buying initiative isn’t working. That would reassure anyone worrying that the bank will have to end the stimulus effort early for lack of bonds to purchase. As a result, Germany’s 10-year Bund yield was up at minus 0.056 percent, while 30-year bond yields rose to 0.516 percent.
