Inflation was, however, revised down to 0.1% in 2015, 1.0% in 2016 and 1.6% in 2017. These figures go a long way in explaining the need for more accommodative measures, since they imply inflation will miss the ECB’s target throughout the forecast horizon.
Draghi was keen to recall how the policy measures taken so far have been successful, and added that more is being done ‘because it works’. He quoted estimates that the quantitative easing (QE) programme would likely add 0.5 percentage points to inflation in 2016 and 0.3% in 2017. A number of options are being left open for the future.
Draghi avoided answering the question of whether the deposit rate had now reached its effective floor and maintained that the purchase programme could be further adjusted. He mentioned that a fresh assessment of the programme would be carried out in the spring, which could again lead to changes in the list of eligible assets or the maximum share of the ECB’s ownership.
Overall, we had expected more from today’s decision as the ECB had strongly emphasised the need to move quickly against the risk of too-low-for-too-long inflation. On the contrary, the central bank seems to be taking a more gradual approach, with President Draghi underlining that the programme will remain in place for a ‘long long time’. We see two possible reasons for such milder-than-expected easing.
First, it could have been the result of a compromise with the hawkish members of the Governing Council, as some of them were very vocal into the meeting.
Second, it could be a way of making the Fed more comfortable in hiking the rate in two weeks, and let it do part of the job necessary in the currency market. If this assessment is right, there will not be much patience needed to see the global monetary policy divergence start for real.