The lack of unanimity in the governing council of the European Central Bank (ECB) could cause issues for president Mario Draghi after its latest announcement failed to impress markets.
In not raising monthly levels of quantitative easing (QE) in the eurozone, despite hinting at such a move in October, Mr Draghi failed to match expectations in the eyes of many economists.
Instead, the ECB announced its QE programme would only be extended by some six months to the end of March 2017, though this could go further “if necessary”.
The notional monthly amount of QE will not increase, although as a short-term stimulus and to tackle low inflation, the central bank dropped its deposit rate into further negative territory, cutting it 10 basis points to -0.3 per cent.
Mr Draghi said: “The monthly purchases of €60bn [£43bn] under the asset purchase programme are now intended to run until the end of March 2017, or beyond, if necessary, and in any case until the governing council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2 per cent over the medium term.”
The extension, while aimed at aiding the return of inflation to its 2 per cent target in the economic bloc, failed to impress. Analysts highlighted divisions within the central bank’s governing board as a source of concern.
Tony Nangle, global co-head of multi asset at Columbia Threadneedle, said the fact the decision was not unanimous was important, as was the market’s disappointment. The latter will be significant when factored into future ECB decisions, he noted.
“It limits president Draghi’s ability to guide markets, which will naturally become more suspicious of his power to deliver [policies through] the governing council,” he added.
The disappointment expressed by the markets could affect Mr Draghi’s leverage inside the council to pursue more ambitious measures, Mr Nangle said.
Other analysts expressed frustration with the underwhelming move.
Simon Ward, chief economist at Henderson, bemoaned the ECB’s communications strategy in the run-up to last week’s meeting. He said comments by Mr Draghi and leaks from the ECB detailing close to 20 different monetary policies being considered, had left markets disappointed.
Mr Ward attributed the surprisingly cautious move to German opposition.
“The suspicion is that Mr Draghi overplayed his hand and ran into stiff German-led opposition based on doubts about the economic case for further easing, and objections to an income transfer from core to peripheral banks implied by a larger cut in the deposit rate.
“With headline inflation set to rebound [and] surveys signalling solid GDP growth, markets may conclude the window for further easing has closed.”
The news was met with a sharp fall in the Euro Stoxx 50 index, which moved 3.5 per cent lower, having previously been up on the day. The FTSE 100 index also moved into negative territory following Mr Draghi’s press conference, closing down by 2 per cent.
The euro, meanwhile, strengthened against sterling at the time of the announcement. The single currency also rose as much as 3 per cent against the dollar.
