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This article was published on Dec. 4, 2015 at 7:11.
The last change is the 4 December 2015 at 08:18.
The European Central Bank President, Mario Draghi, yesterday announced the extension of the plan of purchases of government bonds from September 2016 to March 2017, even with the inclusion of bonds of local governments. The ECB has also brought the deposit rate from -0.20 to -0.30%. EU stock exchanges reacted with sharp declines: Milan ceded 2.47%. The euro strengthened to $ 1.09.
The European Central Bank yesterday announced a package of measures to strengthen the monetary stimulus and to trace the Eurozone inflation, which remains too low, leaving room for new initiatives in the coming months, but disappointing financial markets After the expectations created in recent weeks by several strong statements of President Mario Draghi. Rather than launching a QE2, as it was the day before, the ECB has recalibrated the actions already taken.
The board decided, by a ‘very large majority’, in the words of Draghi, to cut by 10 basis points on rate on deposits of banks with the ECB, bringing it to -0.30%. It is made from a downgrade of the banks who deposit cash at the ECB instead of putting it on the interbank and uses: enhances the transmission of monetary policy, said Draghi. The markets provide for a more consistent cut, even to push further downside the euro exchange rate, or even the creation of a rate “punitive” for part of the excess liquidity, and had already included a cut in the prices of 10- 15 basis points. It is a cut “adequate”, said Draghi.
The ECB has also extended until March 2017 (from September 2016) the program of bond purchases, known as Q, but leaving unchanged at 60 billion € l ‘ monthly amount, which was another reason of disappointment for the markets. In practice, however, the program does not have a defined term, as the council reserves the right to go further, until you see that the prospects for inflation are moving into the goal to stand under, but close to 2% (today is 0.1% and, in updated forecasts yesterday from the ECB, will only come to 1.6% in 2017). It has also been expanded, as expected, the range of securities purchased, including bonds issued by local authorities or regions. It is more a question of titles of some of the German Länder and the Spanish autonomous regions, whose quantity sold, according to estimates, it amounts to tens of billions of euro.
The newest element of the package yesterday the announcement that the ECB will reinvest the redemption of securities purchased under Qe and to come to an end, for as long as necessary. It is a measure similar to those already adopted by the Federal Reserve and the Bank of England, and that prevents the end of the Q and will produce a sudden reduction in liquidity as a result of repayments. The first bought titles for the Qe will not expire in any case until March 2017 and is also in this case it is initially of modest figures. However, it is a signal, said Draghi, who want to maintain an accommodative monetary policy longer than the board had said so far.
The ECB has finally renewed until the end of 2017, the supply to the banks of unlimited liquidity at a fixed rate.
According to Draghi, it is a package of measures that “will take time to be fully appreciated.” The ECB President also stressed that the board has the “will and the ability to act with all means available ‘and that the Q and maintains sufficient flexibility, and has hinted that further action could follow in the coming months.
> The staff macroeconomic projections, which take into account the improvement of the economy of the Eurozone in recent weeks, may have played a role in the formulation of a package less aggressive than expected. The ECB is expected to grow by 1.5% this year, 1.7 next and 1.9% in 2017, figures almost unchanged compared to September, while inflation has been revised downward, but fractionally. The ECB is now estimated 0.1% in 2015, 1% in 2016 and 1.6% in 2017. Growth was driven by consumption rather than investment and exports, and should be encouraged between the ‘ another from a less restrictive fiscal policy. Instead weigh the difficulties emerging market and international trade.
Dragons claimed the success of the policies implemented so far, particularly on the improvement in financial conditions and now, tentatively, also in the volume of credit to the real economy. One reason, he said, to strengthen them. Without the action of the ECB argued, inflation would be lower by 0.5% in 2016 and 0.3% in 2017, and in the three years from 2015 to 2017, growth was less than 1 percent.
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