Policy easing may also face less resistance than in December as the ECB’s rotating voting rights mean several hawks, including Bundesbank President Jens Weidmann, will not get to vote this time.
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Expectations for a fresh shot of stimulus from the European Central Bank on Thursday pushed down the euro and government bond yields in the morning, after New Zealand set the bar high with a surprise rate cut that sent its currency tumbling.
These would likely include a further cut in interest rates, an increase in the volume of bonds it buys each month under its so-called quantitative easing or QE program and possibly a further extension of that measure beyond its current timeframe of March 2017.
Draghi has already said that acting too soon is better than acting too late, and that the rate meeting needs to recognise that the outlook for growth and inflation have deteriorated.
“If so, it will over time serve to lift domestically generated inflation closer to the ECB’s target of close to but below 2.0 per cent”, the expert said.
Japan’s Nikkei index ended 1.3 percent higher, and Seoul was 0.8 percent higher.
The bank expanded the monthly purchases under the asset purchase programme by Euro 20 billion to Euro 80 billion starting in April.
“Under Mario Draghi, the European Central Bank is more Wall Street than Bundesbank”, he added.
“We are not in deflation”.
While the deposit rate was cut 10 basis points to 0.4%, the main refinancing rate was shaved to zero from 0.05% and its marginal lending rate – used by banks to borrow from the ECB overnight – fell to 0.25% from 0.3%.
But after the ECB pushed the deposit rate into negative territory in June 2014, banks argued that having to pay the central bank to hold their excess liquidity was actually eating away at their profits. The money also is tied to incentives to loan more.
“These measures have more of an overall global effect and, yes, are positive in general for society and for markets, although they don*t affect people directly”, said Quero, 42, who works in an employee recruitment agency in Madrid.
Mr Draghi said that inflation would be low or negative this year in light of falls in commodity and energy prices.
European shares were little changed on Thursday, with weaker mining stocks offsetting gains in insurers such as Aviva and Hannover Re, while expectations of more stimulus measures from the European Central Bank also supported equities.
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“But we also acknowledge that there is a risk that they under-deliver as in December, and that would obviously strengthen the euro”.
