ECB meeting fails to meet expectations

In a surprise twist of events, the ECB’s meeting yesterday concluded with measures that failed to rise to markets’ expectations despite Draghi’s reputation of being a central banker that is willing to “do whatever it takes”. This is not to say that the ECB’s President shied away from adding to the stimulus program as he did effectively announce that the bond-buying program will go on for longer than earlier expected.

However, the consensus among investors was that the monthly value of the programme will be increased from the current EUR60 billion target. In turn, the mix of steps taken yesterday increased the value of eligible securities, as bonds issued by regional and local governments were added to the list as were the instruments yielding between -0.3% and -0.2% (after the deposit rate was cut by 0.1 percentage points to -0.3%).

Apparently the disappointing scale of the new wave of monetary easing reflects ECB’s optimism on growth outlook as the bank’s staff kept its GDP forecasts unchanged despite trimming the inflation projections as “the persistence of low inflation rates reflects sizeable economic slack weighing on domestic price pressures and headwinds from the external...