ECB Planning QE Redesign but More QE Unlikely

The ECB may not have announced any more policy easing today, or even indicated that further stimulus is likely in the coming months, but Mario Draghi did a fine job in talking up bond yields in the euro area. Perhaps a sly attempt to free up more assets eligible for purchase under the current quantitative easing structure.

There were two main takeaways from today’s ECB decision and press conference. The first is that inflation and growth forecasts were lowered but only marginally reflecting the negative, albeit less so than previously expected, impact of the Brexit vote. The other is that the committee has been given a full mandate to redesign QE. In other words, the central bank is approaching the point at which it will no longer be possible to carry out QE in its current form, but it is looking at ways to overcome it.

ECB: Draghi to Disappoint

That would explain why they did not announce an extension to the QE program beyond March 2017 today because they must first decide how the program will be adapted. That is not to say it won’t be. In fact, Draghi made it clear that QE will continue, stating that it will run until or beyond the current expiry if necessary. He also claimed that it will run until inflation path is consistent with its goal, which it currently isn’t close to.

All things considered, today was not the event it was built up to be. However, it is clear that the ECB is working towards some significant changes to the QE program, even if that doesn’t necessarily mean more stimulus in the short term. Whether that takes three or six months isn’t really too important.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam