ECB: in QE we trust – UOB

Economist at UOB Group Lee Sue Ann assessed the recent ECB event, where the central bank reaffirmed its dovish stance.

Key Quotes

“As expected, the European Central Bank (ECB) kept interest rates unchanged on Thursday. The ECB also kept its forward guidance unchanged”.

“The accompanying press release statement was a short one, whereby the Governing Council confirmed the need to keep monetary policy accommodative for an extended period of time. It reiterated the key policy language from the September meeting, which saw the ECB moving from a calendar-based forward guidance to an inflation-linked guidance”.

“The statement also confirmed the ECB’s decision in September to restart quantitative easing (QE) under its asset purchase programme (APP) at a rate of EUR 20bn per month from November with no pre-determined expiry date, effectively shifting from “whatever it takes” to “as long as it takes”. It also recommitted to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts eventually raising the ECB’s key interest rates”.

“Draghi, during his press conference, reiterated his previous calls for coordinated fiscal stimulus by Eurozone states that have fiscal space and pushed back against concerns about the extent of dissension expressed by some Governing Council members following September’s decision”.

“When asked about the exceptional public discord amongst Governing Council members that followed September’s decision, Draghi recalled that a “clear majority” had supported the road policy package and that varying majorities supported its specific elements. He did not see the post-meeting dissents as having any impact on the effectiveness of measures agreed, and argued that markets had responded to the September decision as expected with short-term rates coming down”.