The easing measures from the European Central Bank (ECB) today were welcome news for global growth prospects. By going for a package, rather than piecemeal measures, and a more open-ended form of quantitative easing (QE), there is a better chance that there will ultimately be a visible positive impact on the euro area economy (both in terms of growth and inflation outcomes).
The package (including a 10bp deposit rate cut), with tiering (that should ease the impact on banks), forward guidance changes and a QE restart was broadly as expected by analysts. The monthly pace of QE is a bit less than some were expecting. However, the action is effectively open-ended. The duration of asset purchases (QE) is effectively tied to inflation outcomes rather than being for a particular time period. The pace of QE will be €20bn a month to end “shortly before” the ECB raise rates again. In turn, interest rates won’t rise until certain conditions – related to inflation – are met.
It is worth noting though that today’s action was taken in light of downward revisions to the ECB staff growth and inflation outlooks and in an environment where the ECB still see downside risks.
In general, we still see the global outlook as something of a tug-of-war between stimulus and trade tensions. More fiscal stimulus would help (as ECB President Draghi effectively again pointed out today), as will a likely US Federal Reserve rate cut next week. But higher tariffs, persistent trade tensions and high levels of trade-related uncertainty for businesses remain key concerns.
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