ANALYST TAKE: “The ECB’s decision today to leave policy on hold as had been broadly expected reflects the reasonably positive tone of recent economic data, but we think that it will need to announce further policy stimulus before long”, said Jennifer McKeown, senior European economist at Capital Economics.
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“Ultimately we have got to be patient”.
“There was some scope for the European Central Bank to extend the end date of asset purchases or change the composition of those purchases”.
Sterling was open to sharp losses on Wednesday after Bank of England Governor Mark Carney said he was “comfortable” that the Bank of England acted correctly in cutting United Kingdom interest rates after Brexit.
“Fiscal policies should also support the economic recovery”, he said, repeating a message given by central bankers at the annual Jackson Hole gathering this year but which has prompted little response so far in Europe.
That selling gathered pace as focus turned to the difficulties facing central banks globally. Draghi clearly does not share those concerns, quickly brushing away the question.
Shares in the USA and Europe fell after European Central Bank chief Mario Draghi played down the prospect of an increase in asset purchases at a time when concern over the impact of Brexit on the euro area is mounting.
It was reported late on Thursday that Fed Governor Lael Brainard will make a speech on the United States economy on Monday, just before the blackout period for Fed officials ahead of the policy meeting later in the month comes into effect.
He added that eurozone governments that have the capacity to spend more on investments in infrastructure should do so.
The ECB has not discussed the introduction of helicopter money, the former Bank of Italy governor reaffirmed. It made no significant changes to its forecasts, edging up its GDP growth estimate this year to 1.7per cent from 1.6 per cent previously and going the opposite direction for 2017 and 2018, cutting the forecast for both years to 1.6 per cent from 1.7 per cent previously. The euro climbed to $1.1275 from $1.1253. “Compared with the June 2016 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised downwards slightly”, he said in a set of prepared remarks at the conference.
The bank kept its key interest rates on hold and decided against extending the duration of its existing bond-buying stimulus program as it monitors the impact it is having on the economy. The Governing Council confirmed that the monthly asset purchases of Euro 80billion are meant to run until the end of March 2017 or beyond, if necessary and in any case until a sustained adjustment in the path of inflation consistent with the ECB’s inflation aim is seen. Carney was “absolutely serene” about how he warned of the implications of Brexit to the United Kingdom economy before the referendum vote and even stated that the BoE decision to act quelled the impacts of Brexit.
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European bond markets remained under pressure following the ECB meeting, with the 10-year German Bund yield rising around 3 basis points to minus 0.035 per cent.
