Stocks fell yesterday and EUR/USD slipped today as the markets first waited then reacted to ECB plans.
Marios Draghi gave his statement on bid rate then held his press conference on policy review for the Eurozone yesterday. He first announced the vote of the 18 European Central Bank members to leave the minimum bid rate at the same level as last month at 0.05 per cent.
However, as protesters railed outside against the austerity cuts in Italy, the ECB Chairman held his ground and announced from inside the Naples Royal Palace of Capodimonte, details of the much-discussed asset purchase programme.
In the markets, the main equities indices in Europe reacted by falling post the afternoon press conference, with Frankfurt’s Xetra Dax 30 down 0.8 per cent and the Paris CAC 40 down 1.5 per cent. The euro rose by 0.5 per cent to $1.2686. Today this was down to $1.2620.
Mr Draghi announced that the ECB would be progressing with the monetary policy of relaxing controls on the purchase of bundles of loans, he said, This will allow us to start purchasing covered bonds and asset-backed securities (ABSs) in the fourth quarter of 2014, starting with covered bonds in the second half of October. The programmes will last for at least two years. He also referenced, “a series of targeted longer-term refinancing operations to be conducted until June 2016.”
The programme is seen by EBC to “support specific market segments that play a key role in the financing of the economy.” However, to do this, Mr Draghi highlighted specific countries and how they could help.
He encouraged Germany to use their fiscal space to push up demand in the Eurozone, whilst France and Italy needed to stick to the budgetary rules, and Greece and Cyprus, with their ‘junk’ ratings would have to remain in the EU programme of restructuring to meet the requirements.
Though not stated specifically how much the ECB would spend, the size and scope of the purchase programme will have a ‘sizeable’ effect on the 2 trillion euro balance sheet. The announcements were made in the light of a slowing Eurozone recovery, with inflation falling to a five-year low of 0.3 per cent in September, France confirming that its budget deficit will not fall within the limit of 3 per cent of its national income and with Italy postponing any projection for a balanced budget until 2017.
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