Analysts believe the ECB’s took bold action Thursday in deploying a panoply of new measures designed to ease monetary conditions in the currency bloc and to attempt to head off the risk of further disinflation.
Despite the central bank’s action surprising even dovish expectations, economists are unsure whether the measures will have lasting effects on the real economy and are unconvinced that it will be enough to pull the euro area out of the low-growth, low-inflation quicksand.
KIT JUCKES, Societe Generale:
“The jist is that he is doing everything short of full QE to support the economy, and that will be reflected in stronger asset prices generally. The ECBs announced measures are also very close to the predictions of SG economics, so a hat tip top them. And the carrot of full QE is still dangling in front of us.”
“For the economy, the underlying concerns remain. Fiscal policy is still tight, banks are still cautious, borrowers still even more cautious. No reason to change growth forecasts.”
FREDERIK DUCROZET, Credit Agricole:
“It was unanimous which was important and they managed to surprise even dovish expectations. The key things are we have targeted LTROS and credit easing measures. These make it very likely that it will have a significant impact on the real economy, on the credit cycle. That’s very much what is needed at the moment, you can criticise that they should have done it a year ago, but you can’t criticise the detail.”
TOM VOSA, NAB:
“We thought we’d get shock and awe – and that was his intention. We also got the packet that we needed to go alongside. They’ve said that any excess reserves would be hit by the deposit rate so it will encourage banks with liquid funds to give money to those who haven’t, that should reduce banks’ funding costs.”
“I think we’ll see further attempts to talk down the Euro in the coming months.”
CHRIS WILLIAMSON, Markit Economics:
“The European Central Bank went further than expected, taking out a policy ‘shotgun’ to hopefully kill off the threat of deflation. The ECB’s Governing Council unanimously agreed to announce what ECB President Mario Draghi described as a “significant” package of five measures to help lift growth in the single currency area and boost lending.”
“Speculation had intensified in recent months that the ECB would act, and had even been flagged up for June at the prior ECB meeting. Action then became more or less a certainty after inflation fell to just 0.5% in May and the region’s PMI signalled a waning recovery.”
“The only question that really remained is: how bold will policymakers be? As it turns out, the ECB has done pretty much everything that it was thought likely it might do in a ‘shotgun’ approach to policy.”
GARY JENKINS, LNG Capital:
“From a bond investor’s viewpoint the combination of the actions, the forecasts and the dovish rhetoric are all supportive for yields and spreads. Thus the convergence in European government bond yields is likely to continue whilst the injection of further liquidity is likely to keep a lid on the default rate.”
“It is clear from Mr Draghi’s comments that the ECB is at a very different stage of the cycle than the Fed (or the BoE for that matter) and thus on a relative value basis the European bond market still looks like the place to be.”
SUVI KOSENEN, Nordea:
“The ECB delivered a whole package of measures just as we expected. As a result, longer core yields initially rose, the curve steepened and the euro depreciated. We see more upside potential for long yields, but expect EUR/USD to rebound soon.”
“As it will take a long time to see the effect of the measures announced today, the ECB will be very reluctant to jump into any QE programme any time soon, but the ABS programme will be added to the stimulus package later.”
CARSTEN BRZESKI, ING Bank:
“Taken everything together, today’s package of policy measures is a strong one, underlining the ECB’s determination and willingness to act. However, as so often during the euro crisis, first-glance-enthusiasm doesn’t always last. Looking somewhat critically at today’s measures, the ECB has no guarantee that the economy and lending to the private sector can really be kick-started.”
“Back in the summer of 2012, Draghi gave a whatever-it-needs moment for the existence of the Eurozone. Today’s measures are not yet a whatever-it-needs moment for the Eurozone economy but they are at least a good package which will give the Eurozone some additional monetary tailwind.”
HOWARD ARCHER, IHS Global Insight:
“This is a pretty bold and comprehensive package from the ECB, that only stops short of undertaking full-scale Quantitative Easing. Furthermore, the possibility of QE remains on the table as Mr. Mario Draghi is stressing that that the ECB is not finished, and is prepared to take further swift action if needed to address the risk of too long a period of low inflation.
It would have been a major surprise had the ECB not delivered a package of measures at its June policy meeting given the signals that it has been sending ever since its May meeting and the compelling case for strong action provided by Eurozone consumer price inflation falling to just 0.5% in May and being under 1.0% for an eighth month running. Lacklustre Eurozone GDP growth of 0.2% quarter-on-quarter in the first quarter and ongoing falling bank lending to businesses reinforced the case for ECB action.”