European Central Bank: Subterranean

The European Central Bank announced an expanded asset purchase programme at its meeting on 22 January 2015. The size of the programme and that it was open-ended beat market expectations and shows the ECB is determined to fight against the prevailing force of deflation and to raise inflation expectations.

The European Central Bank(ECB)announced an expanded asset purchase programme at its meeting on 22 January 2015.

  1. The size of the programme and that it was open-ended beat market expectations and shows the ECB is determined to fight against the prevailing force of deflation and to raise inflation expectations. 
  2. After disappointing financial markets over recent years, the ECB has delivered a policy that could draw a line in the sand and ‘buy time’ for governments to make all important structural reforms to boost the growth outlook for the eurozone. 
  3. While the decision wasn’t unanimous, there was unanimity that this programme was a true monetary policy tool to protect against future legal challenges. 
  4. Further policy easing still cannot be ruled out and will depend on moves in inflation expectations from here. 
  5. ECB easing must be seen in context of other easings by major central banks; Swiss National Bank, the Danish Central Bank and Bank of Canada. 
  6. Markets have responded in a positive way to the latest ECB meeting. It is expected the general trend for a lower euro and tighter bond spreads remains in place for longer.

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