As expected, the ECB kept policy unchanged at the last meeting of Mario Draghi’s tenure.
Today’s “hold” comes after the central bank unveiled a new stimulus package in September, complete with a rate cut, tiering, new forward guidance and, of course, more QE.
September’s meeting was, by all accounts, the most contentious of Draghi’s eight year term. Minutes from the proceedings betrayed a house divided, especially on the relative merits of relaunching net asset purchases.
Draghi will now hand the reins to Christine Lagarde, who, in addition to stepping into a pair of giant shoes, will be tasked with managing an increasingly controversial set of policies and leading efforts to marshal political support for fiscal stimulus in Europe.
Although Draghi will, of course, be celebrated for doing “whatever it takes” during times of acute stress, his exit comes as the bloc’s economy stagnates. Inflation is now just half of the ECB’s target.
Suffice to say skeptics abound when it comes to whether Draghi’s final bazooka shot will succeed in banishing disinflation and helping Europe shake the derisive “Japanification” brand that’s been seared into the bloc’s forehead.
October’s statement confirms the ECB’s new QE program will begin in November at a pace of €20 billion/month. Reinvestments will continue “for an extended period of time” after the first rate hike. Rates will remain at current levels or lower until the inflation goal is reached.
Asset purchases will run for as long as necessary and stop “shortly before” the first rate hike.
So, again, it’s “QE Infinity” with the only caveats being “subject to the capital key” (which is itself a self-imposed constraint) and subject to a rate hike which is likely to prove wholly elusive.
October ECB statement
24 October 2019
At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
As decided at the last Governing Council meeting in September, net purchases will be restarted under the Governing Council’s asset purchase programme (APP) at a monthly pace of €20 billion as from 1 November. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.