The talk about a coordinated global monetary policy change can be “put to bed” said one investment strategist after yesterday’s European Central Bank (ECB) meeting.
The meeting of the ECB’s General Council was, as always, highly watched but particularly this time for clarification on the bank’s policy direction after ECB president Mario Draghi’s speech in Portugal last month.
The speech had appeared to some as meaning the ECB felt inflation was less of a risk, paving the way to reduce bank measures that support Europe’s recovery.
“The bottom line for us is that the ECB is not yet preparing for an end to its quantitative easing programme, is convinced its current level of monetary accommodation is necessary to get inflation back to target, and still stands ready to act should a tightening of financial conditions slow down, or jeopardise, the path towards target,” said Wouter Sturkenboom, senior investment strategist at Russell Investments.
“Overall, we can put the talk about a concerted and coordinated global monetary policy change to bed. This seemed the case after [Federal Reserve] chair Janet Yellen’s testimony but now we know for sure,” he added.
Salman Ahmed and Charles St-Arnaud, investment strategists at Lombard Odier, said in a joint note: “They used the meeting as an opportunity to reiterate that ‘if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration’, suggesting a continued easing bias to monetary policy.”
Ahmed and St-Arnaud believe when deflationary risks eventually warrant a reduction in the amount of monetary stimulus, this would be in the form of a reduction in the pace of asset purchases rather than immediate rate hikes.
Sturkenboom at Russell Investments said tapering of asset purchases in 2018 “will probably happen but only gradually”.
Marilyn Watson, head of global fundamental fixed income strategy at BlackRock, said: “We view [the] messaging from the ECB as being dovish. Language in the prepared statement pertaining to QE was unchanged and Draghi noted during the press conference that any discussion on changes would take place in the autumn.”
Fund management firm Pimco said earlier this week that it continued to expect the ECB to announce tapering in September or October, with tapering beginning in January 2018 and quantitative easing finishing in the second half of the year.
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