The ECB cut interest rates as expected, but Draghi said that to all practical purposes interest rates have reached their lower bounds, notes Australia and New Zealand Banking Group (ANZ).
“If needed in the future, the ECB will do more and this will take the form of unconventional measures – probably some form of QE. But it could be three to four quarters before the full benefits of today’s measures become evident,” ANZ projects.
For the EUR, ANZ notes that much of the announcement was expected but the fact that Draghi indicated that the ECB may now be at the bottom of the interest rate cycle helped to spark a short covering rally in the single currency
“The euro initially sold off, but soon retraced all its losses. There will be no automatic narrowing in the relative balance sheets between the ECB and other major central banks (ie the Fed). Euro area fundamentals could allow the single currency to resume its uptrend soon,” ANZ projects.
“It remains our view that measures to support growth and reduce tail risks across the euro area are positive for the euro and that in time the currency will regain its poise now that uncertainty over the policy decisions is out of the way,” ANZ argues.