At today’s meeting of the EU central bankers, the introductory monetary statement was left unchanged. In line with our expectations, speculation over a possible adjustment to the forward guidance for the asset purchasing programme (APP) proved unfounded. On the contrary, Draghi continued to stress that the APP would be continued at least until September 2018. Furthermore, an extension or increase of the asset purchases remains one of the possible options if the inflation rate fails to head in the desired direction. However a striking point is that, for the first time since September, Draghi again referred to the volatility of the euro as a possible source of uncertainty which would have to be monitored more closely. But even if Draghi has given expression to his general sense of unease over the latest exchange rate movements, this was not enough to curtail the strength of the euro. Thus, in the course of the council meeting Europe’s single currency managed to briefly clear the USD 1.25 mark.
During the press conference, the question was raised over the extent to which the asset purchases will be brought to an end in September or possibly continued. Draghi’s answer was that the council had still not discussed this issue but that, with the economy improving better than expected, a discussion would have to take place in the coming months. To counter speculation over a swifter departure from the ECB’s current policy course, Draghi at the same time stressed that substantial monetary stimulus was still advisable if the ECB’s inflation target was to be reached. Draghi also defused market speculation over possible interest rate hikes. According to his estimate, there is still little likelihood of an interest rate increase being made this year. Today’s event therefore developed as we had expected, but the market reaction reveals the precise opposite. The market appears to have expected more and then given up in a show of disappointment.
This council meeting gives a somewhat mixed picture. In broad principle, the good economic development suggests the need to gradually wind back the monetary stimulus. On the other hand, the euro’s appreciation is dampening the uptrend in prices. The central bankers still need to gain clarity over the future policy course.