ECB Punts On Policy
Alvexo | Sep 03, 2015 10:39AM ET
Amid widespread speculation that the European Central Bank would announce a shift in asset purchases, today’s interest-rate decision and subsequent press conference failed to live up to expectations. ECB President Mario Draghi choose to focus predominantly on the inflation and GDP predictions for 2015-2017, revising all numbers to the downside with the risks remaining downward considering the weakening external situation in emerging markets. Expectations for 2015 growth were cut from 1.50% to 1.40% while 2016 declined to 1.70% and 2017 is forecast to experience 1.80% growth, a far cry from earlier predictions. Inflation was substantially worse, with annualized inflation estimated to print at 0.10% through the end of 2015, averaging 1.10% in 2016 and 1.70% in 2017. Much of this is predicated on a rebound in commodity prices, which Draghi cited as having a major impact on the outlook. However, he declined to say whether the factors were transitory or expected to prevail over the longer-term aside from the notion that there were further downside risks based on external developments.
Easing measures were widely lauded as having improved the underlying fundamentals of Europe, especially with respect to improvements in lending to individuals and businesses. Nevertheless, tightening financial conditions have impacted the outlook, with anticipation that the next ECB meeting will see a change in the pace, duration, or assets covered by the current quantitative easing program. More importantly Draghi remarked that the end date for asset purchases could be extended past September 2016 if necessary, opening the door to expanded purchases should conditions deteriorate. Considering the number of times downside risks to the outlook were mentioned, it is a distinct possibility that Draghi merely wanted to hold off on new policy members ahead of the meeting of the G20 later this month in anticipation that policies would be heavily debated in the wake of the Chinese devaluation decision. If indeed he was punting, in order to get a better evaluation of the volatility situation and outlook for the currency wars, this might have been a prudent move. However, the declining external conditions might have merited an earlier move to accommodate further, especially in light of the recent euro appreciation which could stymie export growth.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.