Draghi dials back QE in his last salvo; trade war and low inflation rankle investors
Highlights:- ECB re-starts QE programme, along with further cut in deposit rates
- Guidance for indefinite asset purchase and lower rates add to strong liquidity measures
- Triad of weak domestic growth, trade uncertainty and low inflation reading weighs on ECB
- Second major central bank to say "monetary policy is not answer for every macro challenge"
- Guidance for indefinite asset purchase and lower rates add to strong liquidity measures
- Triad of weak domestic growth, trade uncertainty and low inflation reading weighs on ECB
- Second major central bank to say "monetary policy is not answer for every macro challenge"
-Tricky lower inflation expectations add to monetary policy uncertainty
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The European Central Bank (ECB), as anticipated, has restarted the quantitative easing (QE) programme wherein it intends to inject liquidity at the rate of 20 billion euros per month from November 2019. The widely expected stimulus package includes lower deposit interest rate at -0.5 percent instead of the earlier -0.4 percent.
The ECB has opted for a change in guidance stating that policy “...interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2 percent and such convergence has been consistently reflected in underlying inflation dynamics".
Reading both "guidance" and indefinite QE together translates into another "whatever it takes" stance of Mario Draghi before he steps down from ECB later this month.
Chart: Euro Area Central Banks balance sheet
Source: ECB
Chart: ECB's earlier asset purchase programme
