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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ANALYST’S TAKE: “Whatever the case, ECB’s inaction reinforces the consensus from the recent G-20 meeting that monetary policy by itself can not lead to a balanced growth, implicitly hinting that fiscal policy needs to complement”, Bernard Aw of IG said in a commentary.
Eurozone inflation – which the European Central Bank aims to maintain at just below 2.0 percent – remains well shy of target, stuck at 0.2 percent in August. So far, economic data do not suggest a major impact. Eurozone inflation stands at 0.2%.
New inflation projections compiled by ECB staff may give some hint about the bank’s future actions.
Mr Draghi said that while inflation remained low at an annual rate of 0.2%, the European Central Bank was forecasting it to rise in the coming months. Lowering them would support arguments for more action.
USA stocks are falling in midday trading, following European indexes lower after the European Central Bank didn’t expand or extend its stimulus measures. Fed Chair Janet Yellen has said the case has strengthened for more rate increases on top of a quarter point hike made from near zero in December.
The ECB has pumped €1tn in newly printed money into the eurozone’s banking system through bond purchases since March 2015.
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.
But inflation has been slow to respond.
In Europe, German shares took the brunt of the European Central Bank let-down but shares in Southern Europe gained.
President Mario Draghi told a news conference that governments’ implementation of “structural reforms needs to be substantially stepped up to reduce structural unemployment and boost potential output growth”.
But Shilen Shah, bond strategist at Investec Wealth & Investment, said Draghi could ultimately be forced to launch more stimulus.
The ECB cut its growth forecast for next year to 1.6 per cent from the 1.7 per cent seen in June, to account for risks including the expected effect of Britain’s decision to leave the EU, Mr Draghi said. But so far there has been little hard data to show that’s happening.
The ECB kept all policy rates unchanged, maintained its monthly QE purchases of EUR80bn and still intends to end its purchases in March 2017.
It is clear that the ECB’s bond-buying initiative isn’t working.
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The rate on deposits from commercial banks was also unchanged at minus 0.4%.
