Markets disappointed as ECB fails to give stimulus details
Markets have slumped in afternoon trading after the European Central Banks’ (ECB) president refused to confirm details of a bond buying programme as expected.
Speaking at a press conference earlier today, after the bank announced it was not changing its interest rates, Mario Draghi said the ECB “may undertake outright open market operations of a size adequate to reach its objective”.
When questioned by journalists on whether there was further detail, the president reiterated his statement that the ECB “may” act if needed, but only after individual governments have fulfilled necessary conditions.
“First of all governments need to go to the EFSF (European Financial Stability Facility - the eurozone’s resuce fund); the ECB cannot replace governments,” he said.
Markets had expected more definitive answers after Mr Draghi’s last speech in London, in which he said the ECB would “do whatever it takes” within its mandate to save the ailing 17-member currency bloc.
The FTSEurofirst 300 index fell sharply during the speech, from 1079.72 to 1055.93, representing a fall of 2.2 per cent.
The FTSE 100 index of major UK shares also reacted negatively, falling by a staggering 1.9 per cent during the speech. The S&P 500 index, which opened shortly before the end of the press conference, immediately dropped 0.8 per cent.
In the press conference Mr Draghi said that the ECB was also ready to undertake “further non-standard monetary policy measures”, which was “very different” from previous actions.
He said the bond market intervention was going to be focused on the shorter part of the yield curve, which would also “introduce discipline on the long part”.
Mr Draghi said the decision to focus “effort” on that area came as it fell squarely in the category of a “classical monetary policy instrument”.
He said that while there was no specific instance that had led the ECB to have the discussions it had today, there was “just a sense of a worsening of the crisis and a worsening of consequences of financial markets fragmentation in the euro area.
“Not one single episode but one thing was a saddening increase in the shorter part of the yield curve for several countries in the euro area, which for those who know financial markets will know is usually ominous,” he said.
Following the speech in London last week, markets had bounced amid speculation that the ECB was ready to act to stimulate markets further.
Today, Mr Draghi said that while the endorsement to do “whatever it takes” was unanimous among the governing council, he did not commit details and said they would not be finalised for “weeks”.
“Now the guidance committee, the risk committee and the monetary policy committee will work on this guidance and will take a final decision,” he said.
“We have issued guidance and strong guidelines with details [will be] completed in coming weeks.”