ECB president Mario Draghi confirmed that while monetary policy measures remain unchanged, an expansion of the ECB QE programme and an extension beyond the September 2016 deadline remain likely.
Speaking after the monthly meeting of the ECB governing council, Draghi stressed that growth and inflation levels throughout the Eurozone remain a factor of concern and suggested that QE measures would be reassessed at the December meeting.
Referring to the most recent Eurostat data, he pointed out that HICP inflation in September had declined to -0.1%, compared to 0.1% the previous month. Similarly, Euro area real GDP growth slowed down somewhat, from 0.5% to 0.4% throughout the same period.
“In particular, the Governing Council recalls that the asset purchase programme provides sufficient flexibility in terms of adjusting its size, composition and duration” Draghi added.
Marilyn Watson, head of global unconstrained product strategy in BlackRock’s fixed income business, comments: “The ECB certainly remains in the easing camp. Today it maintained its refinancing rate at 0.05% and the deposit rate at -0.2% but, significantly, President Draghi noted that the Governing Council discussed a cut in the deposit rate. Overall, he struck a decidedly dovish tone and opened up a very real possibility of further QE or a cut in the deposit rate in December.”
Anthony Doyle, investment director at M&G Retail Fixed Interest team added: “The ECB has bought €478bn of bonds since QE was implemented (€13bn ABS, €122bn covered, €343bn government and supranational bonds) which is around 3% of GDP. By way of comparison, the Bank of England’s £375bn QE programme represents close to 20% of GDP. By this measure, it is clear that the ECB should and will act to increase its asset purchase programme at its next meeting as there is plenty of scope to do more. Any move to beef up QE would likely support asset prices, particularly in European bond markets and would probably result in a weaker euro.”