27 July 2018
The ECB today gave investors no new information. This was no surprise; the fireworks really came last month, when the ECB announced a reduction in the pace of quantitative easing from 30 billion euros a month to 15 billion euros a month in the fourth quarter, followed by a complete halt in January 2019. More importantly, Draghi committed to not hiking rates until ‘at least’ September next year. As a result, today’s meeting was as ‘dead’ as a central bank meeting could be.
Despite external headwinds to the eurozone, the ECB’s incredibly loose monetary policy means that the labour market continues to tighten, with above-trend growth and unemployment falling steadily. Indeed, given Draghi’s prior commitment on rates, the ECB is unlikely to exit negative interest rates until the unemployment rate is essentially at all-time lows. This is wholly unnecessary, as inflation sits at the ‘just below 2 per cent’ target and core inflation is showing signs of life, with deflation a distant memory.
When the next global downturn comes, the ECB may have needlessly left itself very little ammunition, and the distortions in credit markets that its loose policy have created may come back to haunt it.
The value of investments and the income from them can go down as well as up so you may get back less than you invest. Past performance is not a reliable indicator of future results.
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