Maxime Alimi, Senior Economist at Axa Investment Managers (Axa IM), discusses the European Central Bank’s (ECB) announcement today and concludes that the milder than expected easing may aim to facilitate a Federal Reserve (Fed) lift-off later this month.
The ECB delivered additional monetary easing measures at its December meeting but disappointed the market’s high expectations. The central bank cut the deposit rate by 10 basis points (bps) to -0.3% and extended its asset purchase programme by six months, to until ‘at least’ March 2017.
Maturing assets will, from now, be reinvested within the programme and purchases will be extended to regional and local public debt. Still, financial markets were expecting more on both accounts, namely a larger deposit rate cut and an acceleration of monthly purchases.
As a result, European assets sold off aggressively after the meeting while the euro appreciated significantly.
Today’s decisions were taken on the back of the updated ECB staff macroeconomic forecast, which was only marginally changed. Real GDP growth was revised upward to 1.5% in 2015, 1.7% in 2016 and 1.9% in 2017.
President Draghi adopted a fairly sanguine tone on the economy, emphasising the broadening of the recovery and its domestic, as opposed to export-led, features.