The latest announcement by the European Central Bank on its quantitative easing program has left executives in the money management industry underwhelmed and disappointed.
ECB President Mario Draghi announced Thursday a cut in the interest rate on deposits to -0.3%, from -0.2%, effective Dec. 9.
The time frame for asset purchases under the eurozone’s quantitative easing program was extended by six months to March 2017, but it will extend beyond that “if necessary,” Mr. Draghi said at a news conference announcing the decisions. Sources in the money management industry said they had expected an increase in the size of the asset purchase program by €10 billion ($10.6 billion) to €15 billion, from the current €60 billion per month.
The pool of bonds that the ECB can purchase will widen to include regional and local government debt. The ECB also announced a revised forecast for growth for 2017, to 1.9% from 1.8%. The inflation forecast for 2017 was lowered to 1.6% from 1.7%.
Richard Benson, managing director, co-head of portfolio investments at Millennium Global Investments, said in a telephone interview that Mr. Draghi delivered far less than was expected by the market. Potential reasons were that the euro and financial markets had moved “quite a bit already,” and, given expectations that the Federal Reserve will hike interest rates in two weeks’ time, the euro will continue to move.
The extension of QE by only six months “was a damp squib,” Mr. Benson said.
Neil Williams, group chief economist at Hermes Investment Management, added in a separate news release that the ECB’s six-month extension, and the inclusion of regional and local debt, indicates an intention to do more. But failing to increase the pace of asset purchases, and not including assets such as more corporate bonds and mortgage debt, means the bank is keeping dry powder. The deposit rate cut of 10 basis points is “puny,” Mr. Williams said.
Greater expectations of a longer QE program and bigger asset purchases meant European equity markets dropped, and the euro rallied, sources said. The Stoxx 600 index closed Thursday down 3.14%, while the euro was up 2.9% against the dollar as of 12:30 p.m. EST.
