ECB disappointed EUR-bears last week – UOB

Economist Lee Sue Ann at UOB Group assessed the recently announced stimulus package by the ECB.

Key Quotes

“In his penultimate meeting as European Central Bank (ECB) President, Mario Draghi unveiled a fresh package of stimulus measures. First and foremost, the deposit rate was lowered by 10bps from -0.40% to -0.50%, which was within our expectations, but less than market expectations of between 10bps and 20bps”.

“The ECB endorsed a more dovish forward guidance. Instead of calendar-based, the ECB replaced it with an inflation-linked guidance… Now, it “expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics”.

“The ECB also announced new quantitative easing (QE) under the Asset Purchase Programme (APP) which will be restarted from 1 November at a monthly pace of EUR20bn per month, lower than consensus expectations of EUR30bn per month”.

“Also, the question remains whether what has just been unveiled will be sufficient to get Eurozone growth and inflation back on track as the real elephant in the room is fiscal policy. Nonetheless, Draghi has certainly left plenty of room for maneuver to his successor Christine Lagarde”.