The European Central Bank has sparked speculation among money managers that it might announce at its meeting in December an extension to its existing quantitative easing program.
Mario Draghi, president of the ECB, said at a news conference in Malta on Thursday that the governing council has been closely monitoring data, and while eurozone domestic demand remains “resilient, concerns over growth prospects in emerging markets and possible repercussions for the economy from developments in financial and commodity markets continue to signal downside risks to the outlook for growth and inflation.”
Mr. Draghi added that a thorough analysis of factors slowing the return of inflation to “levels below, but close to, 2% in the medium term” are necessary. “In this context, the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting, when the new eurosystem staff macroeconomic projection will be available.”
He said the existing asset purchase program — €60 billion ($68.1 billion) a month, which started in March and is set to run through the end of September 2016 — has “sufficient flexibility in terms of adjusting its size, composition and duration.”
Mr. Draghi reconfirmed that the program could run beyond next September if a sustained adjustment in inflation to close to 2% is not achieved.
“The ECB was extremely dovish,” said Richard Benson, managing director, co-head of portfolio investments at Millennium Global Investments, in an e-mail. “They all but forward announced an easing in December.”
The potential for an increase in the size of the ECB's asset purchase program also was highlighted by sources.
More importantly, the ECB opened the option of further cuts to deposit rates, Mr. Benson added. “We had formerly been told they were at the lower bound, and now they are not.”
Sandra Holdsworth, fixed-income manager at Kames Capital, said in a statement that any further cut to the -0.2% deposit rate “is likely to frustrate holders of cash deposits who will continue to see their capital erode for some considerable time.”
From here, the ECB most likely will extend its quantitative easing program by six months, Mr. Benson said. Deposit rate cuts, “are probably a last resort unless the currency is stronger” closer to the December meeting, he said.