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Decoding the ECB ‘disappointment’

All of which ran counter to market expectations of more significant changes, including raising the pace of purchase.

“The ECB badly mishandled its communications strategy in the run-up to today’s meeting, with comments from Draghi and leaks about 20 different easing measures being under consideration encouraging market expectations of much more aggressive action,” said Henderson Global Investors chief economist, Simon Ward.

“The suspicion,” he added: “is that Draghi overplayed his hand and ran into stiff German-led opposition based on doubts about the economic case for further easing and objections to an income transfer from core to peripheral banks implied by a larger cut in the deposit rate.”

Toby Nangle, global co-head of multi asset & head of asset allocation, EMEA at Columbia Threadneedle agrees that there might be an element of Draghi over-playing his hand.

“The ECB knew that they were disappointing market expectations. But there is an open question as to the degree to which Draghi has in the past sought to move market expectations in order to gain leverage inside the Governing Council when persuading them of the need to deliver monetary easing,” he said.

Indeed, he added, the non-unanimity of the decision and the market’s disappointment are both important because they limit Draghi’s “ability to guide markets who will naturally become more suspicious of his power to deliver the Governing Council.”

Ward, on the other hand, points out that with headline inflation set to rebound, surveys signalling solid GDP growth and M3 expansion above the ECB’s “reference value”, “markets may conclude that the window for further easing has closed, putting a floor under the euro, especially with Fed Chair Yellen remaining resolutely non-committal about a second US rate rise”.

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