Draghi spells it out : the ECB will implement QE programme "in full" ....... but will it really ?
Friday 15th May 2015
"QE scheme will run its course, says Draghi" , The
Times, p.45
and
"Draghi warns on QE inequality dangers" , The Financial
Times, p.8
So now we know ..... in a high-profile speech in Washington
yesterday ECB president Mario Draghi stated that the ECB's 60b euro per
month bond purchase programme would run its full course. Traders like to hear
such unequivocal pronouncements. The perception that the ECB would not
simply continue to buy bonds at any price has in large part caused the
sharp reversal in bond markets in recent weeks. Mr Draghi's comments would
definitely seem to draw a line under those particular worries. And yet ......
For a man intent on reiterating the ECB's commitment to its QE
programme, Mr Draghi spent an awfully long time warning central bankers about
the dangers of such a strategy, mostly revolving around the accusation that it
creates asset price bubbles and inequality. It is perfectly reasonable for him
flag up such dangers, just as he is right to assert that to instigate
programmes for the greater good is the right way to go so long as you identify
and mitigate its attendant problems. But he also said that QE would
be implemented in full or "until we see a sustained adjustment in the
path of inflation" and "....our monetary policy will stay in place as
long as needed for its objective to be fully achieved on a truly sustained
basis".
Such caveats put doubt in traders' minds, and do provide a window
should the ECB wish to change policy. For sure, and as Mr Draghi pointed out
himself, after such a long deflationary and recessionary period a sustained
period of stronger numbers will be required to provoke such a change. The
ECB's target for inflation is somewhere close to but not exceeding 2%, and
that's a long way off. But then again, the QE programme is not due to finish
until September 2016, and in these markets that's a long way off too. The
banner headlines may seem categorical, but nothing is written in stone .....
which is probably just how the ECB want it.
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