The ECB gave no decision on quantitative easing, sending the euro on a rebound against the dollar.
Image Source: Carl Court/Getty Images Europe
Mario Draghi, President of the ECB gave a less-than-dovish statement after the European Central Bank meeting yesterday. German opposition may have halted his course of QE now, but he stated, "Do we need to have unanimity to proceed on QE or can we have a majority? I think we don't need unanimity," inferring that Germany will not stand in the way of his fiscal programme.
To date, the ECB programme has given banks the ability to offer long-term cheap loans, the ECB have bought covered bonds and asset-backed securities. The next stage, which is in conflict, will be the printing of cash to buy government bonds.
Draghi confirmed his commitment for the ECB to support the 18 countries of the European bloc saying, "Early next year the Governing Council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments." Allowing the goal of price stability to fail is not an option for Draghi and he uses the U.S QE programme as an example, stating that, "QE has been shown to be effective in the United States and UK."
However, expectations for economic growth and inflation are disappointing with forecasts that the eurozone’s economy will grow just 1.0% instead of the 1.6% predicted. The inflation forecast is also down to 0.7% for 2015, significantly below the target of 2.0% and the prediction made in September of 1.1%.
Business activity is also down with Markit’s European PMI figure sinking to 51.1 from the previous month’s 52.1. This is above the expansion rate of 50.0 but as firms cut prices and good’s prices fall, there is a danger that consumers will wait for more price decreases, pulling the economy down and causing deflation.
In terms of global growth, the Eurozone is falling behind, certainly against the U.S and China. Draghi is playing catch up but has set a goal for increasing the balance sheet to 1 trillion euros and will consider money printing for government bond buying early next year.
The markets reacted with the EURUSD rallying against the dollar but falling back on half of its gain. European indices reacted in opposition, falling back but regaining half of their losses by today.
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