Indeed, Nancy Curtin, Close Brothers Asset Management CIO summed up the feeling well saying: “The combination of a rate cut, corporate bond buying, and upping the ante on asset purchases went a lot further than expected, although markets would clearly have appreciated a greater commitment to further interest rate cuts from Draghi.”
If markets were unsatisfied by a package that included not only a five basis point cut to the main refinancing operations (bringing it to 0%) and the widely expected 10 basis point cut to the deposit facility to -0.4%, but also an expansion to the ECB’s monthly asset purchase programme to €80bn starting in April, a widening of the list of eligible assets to include non-bank investment grade euro-denominated bonds and a new series of four targeted longer-term refinancing operations (TLTRO II) the question has to be asked: will ECB President ‘Super Mario’ Draghi ever be able to do more from here?
During the press conference following the announcement, Draghi appeared to admit the ECB is stuck between a rock and a hard place, characterising his QE policy as nothing more than the best of all evils. “Suppose we did give up and we got deflation, one of the most important negative effects of deflation is to increase the real weight of debt, so to this extent the expansionary measures are very positive,” he said.
More than just more rate cuts
What Draghi did attempt to do, however, was to steer markets away from expectations of further cuts to interest rates – something which seemed to disappoint markets.
Indeed, much of the ECB president’s commentary seemed to be an attempt to dispel any worries that the ECB had run out of policy tools.
Draghi said the policy measures announced were “the best possible response” to concerns raised by the Bank of International Settlements earlier this week that markets have begun to question central bank efficacy.
“It is a fairly long list of measures and each one is designed to have the maximum impact on boosting the economy and the return to price stability,”he said. “So, we have shown we are not short of ammunition.”