ECB QE extension: Have not discussed, will not discuss?
Contrary to expectations the ECB did not feel the urge to discuss the possibility of extra stimulus. To their opinion, the European economy is developing in line with their baseline scenario which they presented in spring this year. Also, nothing much changed in the economic projections presented to them.
The ECB took every opportunity to stress that other parties, in fact the European governments, should start to help the ECB with more stimulus. During the press conference, Mario Draghi went as far as reading out loud the G20 declaration of last weekend, in which world leaders committed to take every step needed to stimulate a sustainable, inclusive, worldwide economic growth.
Maybe the ECB is telling the capital markets that for them the boundaries of monetary policy are within sight. Further stimulus has to come from the European governments. The only promise the ECB can make is that they will prevent that their balance sheet will start shrinking, thus tightening monetary policy. They see the economic recovery at a steady pace, good enough for them and if you want more you should try at another door.
From this one has to conclude that interest rates are low, stay low but will not move down much further. If governments in Europe take the bold step to allow for a more expansive budget policy, inflation expectations for the Eurozone could actually start to rise again.
William de Vries, head of Core Fixed Income at Kempen Capital Management