“Today’s ECB statement was essentially unchanged with policy on hold, at most acknowledging the improving growth outlook. Markets have already adjusted expectations towards a firmer path of stimulus removal from here, with gradual and data-dependent tapering of QE likely to start in January 2018. As such, Draghi had little incentive to press the point more aggressively. There is unanimity at the central bank that removal of stimulus should progress with extreme patience, given subdued inflation.
“Indeed, the ECB did not remove language suggesting that QE could be increased if the situation deteriorates. This will have disappointed some, but no one is under any illusion - the ECB is heading slowly towards the exit. Draghi indicated that discussions on ‘tapering’ of QE will take place in Autumn. ‘Technical work’ on the options has not yet started, as they patiently await more GDP and inflation data. Perhaps the bigger story was that Draghi refused to say that the strengthening Euro was a concern, which will allow some more currency strength. Similarly, he stated that bond yields are very low, so the ECB won’t stand in the way of further declines in bond markets. But this outlook all depends on broader financial conditions remaining supportive. If global growth slows and the current ‘Goldilocks’ market environment becomes less benign, which is very likely as we head into 2018, the ECB (and central banks globally) will find it harder to sound so confident in moving towards tighter policy.”
http://www.fixed-income.org/ (Foto: Anna Stupnytska © Fidelity International)
