What to make of the ECB’s monetary policy meeting?

The ECB’s monetary policy meeting on Thursday saw the central bank keeping its cards close to its chest, giving away little regarding forward guidance. Still, experts believe that policy makers are likely to prepare for a crucial decision that could be taken at the December policy meeting, with the question of whether to extend the bond purchases beyond March 2017 being the key point of discussion.

At its policy meeting today, the central bank held all the main rates unchanged, as follows:

  • Refinance rate: 0 percent
  • Deposit rate: -0.40 percent
  • Marginal lending facility: 0.25 percent

At today’s policy meeting, ECB president Mario Draghi made it very clear, noting that “sometimes it is important to mention what was not discussed” before going on to make it clear that QE tapering nor extension of the bond purchase program was discussed. The euro felt relieved on the news as seen by the brief intraday rally towards $1.10 but the single currency gave up its gains towards the close of the European markets, falling to a three-month low at $1.0914 after Draghi said indirectly that the central bank was not ruling out an extension of the quantitative easing program.

EURUSD – Intraday chart, 20th October 2016

ECB November Policy Meeting – Key points

The key points from the November 2016 ECB monetary policy meeting are as follows.

QE Extension: For the markets, it was a bit of a disappointment after the central bank president said that the governing council did not discuss an extension to the bond purchase program. While it sounded bullish for the euro, the gains were short-lived as Draghi later said that the ECB staff was working on making technical changes to the program which could make QE extension a possibility. The comments, saw the euro giving up its gains and is likely to close the day on a bearish note.

Policy Hints: The ECB president was careful in his speech and during the press conference avoiding anything that could suggest or even remotely send out the wrong signals. The press conference, which ended 13 minutes ahead of schedule, saw the ECB chief suggesting that a halt to the central bank’s bond purchases was unlikely. “My perception is that the sudden stop is not in anybody’s mind,” he said. “It’s not something that people naturally contemplate.”

On QE Tapering: Mario Draghi said that policy makers sidestepped the question on reducing the monthly pace of bond purchases if the QE program extended beyond the March 2017 deadline. Draghi brushed aside the thoughts calling it “a random statement made by someone who didn’t have any clue or information about that.”

ECB needs more time: The central bank chief’s main message from today’s policy meeting was that the governing council required more time assess the options available. Mr Draghi highlighted the fact that the staff projections for 2019 would be issued during the December policy meeting and stressed that any pressure in inflation moving towards the ECB’s target rate of 2% would need to be “sustainable and durable.”

The Brexit Impact: Speaking about the UK’s decision to leave the EU, the central bank said that the June decision was barely mentioned or discussed during the governing council meeting, subtly giving away that Brexit hasn’t had any significant impact on the euro zone economy for now.