“The central banks, whether it is the US or the ECB, it is clear they can change their mind on a whim, so this can certainly be changed again”.
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The ECB on Thursday left its current stimulus program unchanged at the conclusion of its monetary policy meeting, frustrating investors who expected an adjustment to its bond-buying program or hints at other measures to revive the eurozone economy.
The index is down almost 5% in 2016, although it has rallied over the last two months from lows reached in June after Britain’s shock “Brexit” vote to quit the European Union.
But since Britain has yet to trigger the process to extricate itself from the bloc, analysts warn that it could take time for the economic fallout to make itself felt.
Mario Draghi, the bank’s president, said yesterday that the board had chose to keep interest rates at the record low of 0%, the bank deposit rate at -0.4% and did not discuss expanding the €80bn per month bond-buying programme. Shares in HP Enterprise slid 48 cents, or 2.2 percent, to $21.61, while Intel shed 30 cents, or 0.8 percent, to $36.15.
“The Governing Council tasked the relevant committees (with the ECB) to evaluate the options that ensure a smooth implementation of our purchase programme”, he told a news conference after the policymaking council kept its key interest rates on hold.
The euro was trading firm ahead of the decision but when the European Central Bank announced that it was maintaining its current monetary policy, the single currency jumped higher.
The ECB is expected to extend its trillion-euro bond-buying program beyond March 2017 and announce plans to expand the universe of eligible bonds as part of its efforts to kick-start the euro zone’s economy. On the other hand, the European Central Bank repeated that its program of monthly asset purchases of 80 billion euros will continue until at least the end of March 2017.
Draghi and the ECB are faced with inflation of only 0.2 percent annually, far below the bank’s target of just under 2 percent.
The euro, meanwhile, rose after European Central Bank economists said they now expect 1.7 per cent growth this year, up from the 1.6 per cent they forecast in June.
But for the moment, Draghi said the changes to the outlook are not “so substantial to warrant a decision to act”. Investors were even more puzzled when Draghi admitted the EBC didn’t have any discussion as to an extension of the asset-purchase plan, as he stressed that the European Central Bank was focused on the current programme implementation and admitted that the bond shortage seems to be an issue despite previously dismissing it.
“The month of July was clearly not a good month for Germany”, ING economist Carsten Brzeski said. The euro climbed to $1.1251 from $1.1245.
Responding to a crescendo of criticism from lenders about low or negative rates cutting into their profits, Draghi pleaded for patience to give the ECB’s unprecedented stimulus of low rates, cheap loans to banks and a huge injection of liquidity a chance to work.
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“These lower interest rates are really damaging the banks”, said Jonathan Roy, advisory investment manager at Charles Hanover Investments.
